Arrangements and loss of control – appointment of a receiver

Fri 15 Jul 2016

The First Tier Tribunal, in the case of Farnborough Airport Properties Company Limited ([2016] UKFTT 0431) TC05184 was asked to consider the impact of the appointment of Receivers on the availability of group relief: in particular the application of section 154, CTA 2010. Under s154 CTA 2010, group relief is denied if there are ‘arrangements’ in place whereby a person (other than the companies involved in the group relief claim) has or could obtain control of one company but not the other.  It is worth noting that the statutory Notice of Appointment (Form LQ01) records – by way of a ticked box – that the receivers were appointed, as ‘Receivers’ (rather than as ‘Administrative Receivers’ or ‘Managers’) over ‘The whole of the property of the company’, as opposed to ‘Part of the property of the company’.

A range of alternative approaches to the interpretation of the legislation were considered and rejected. For example, it was argued that the purpose of the provision was to prevent group relief being claimed where tax avoidance was involved.  The judge rejected this, stating his view that s154 was designed to be of ‘straightforward and practical application’ and so would apply whenever ‘arrangements’ were in place. The critical point at stake was therefore whether the companies involved in the group relief claim remained under common control. On the facts (and in particular following a close examination of the detailed terms of the Deed of Debenture which included, for example: “2. CARRY ON BUSINESS – generally to manage the Secured Assets and to manage or carry on, reconstruct, amalgamate, diversify or concur in the carrying on the business of that Chargor or any part of it as he may think fit the Tribunal held that “the receivers gained control of the company within the meaning of CTA 2010 s 1124(2) as:

1. The whole of the property of the company was put into the hands of the Receivers;
2. The Receivers had very extensive powers, including the power to do or omit to do anything which they considered appropriate in relation to the Secured Assets;
3. The Receivers had the power to do all such things (including the carrying out of works) as may be necessary for the realisation of the property of the company;
4. The Receivers had the power to carry on the business of the company.”

Accordingly, once the receivers had been appointed, the affairs of the company were no longer being conducted in accordance with the wishes of the Appellants’ shareholders and that was sufficient to de-group the company, meaning that group relief could no longer apply.