(1)M1If at any time after the application of the proceeds of the loan the individual has recovered any amount of capital from the close company, co-operative, employee-controlled company or partnership without using that amount in repayment of the loan, he shall be treated for the purposes of sections 353, 360, 361 and 362 as if he had at that time repaid that amount out of the loan, so that out of the interest otherwise eligible for relief (or, where section 367(4) applies, out of the proportion so eligible) and payable for any period after that time there shall be deducted an amount equal to interest on the amount of capital so recovered.
(2)M2The individual shall be treated as having recovered an amount of capital from the close company, co-operative, employee-controlled company or partnership if—
(a)he receives consideration of that amount or value for the sale, exchange or assignment of any part of the ordinary share capital of the company or of his share or shares in the co-operative or of his interest in the partnership, or of any consideration of that amount or value by way of repayment of any part of that ordinary share capital or of his share or shares in the co-operative; or
(b)the close company, co-operative, employee-controlled company or partnership repays that amount of a loan or advance from him or the partnership returns that amount of capital to him; or
(c)he receives consideration of that amount or value for assigning any debt due to him from the close company, co-operative, employee-controlled company or partnership;
and where a sale or assignment is not a bargain made at arm’s length, the sale or assignment shall be deemed to be for a consideration of an amount equal to the market value of what is disposed of.
(3)M3In the application of this section to Scotland for the word “assignment” wherever it occurs there shall be substituted the word “ assignation ”.
(4)M4Section 360, or, as the case may be, 361(2) or (4) or 362(2) and subsections (1) to (3) above, shall apply to a loan within section 360(1)(c), 361(1)(c) or (3)(b) or 362(1)(c) as if it, and any loan it replaces, were one loan, and so that—
(a)references to the application of the proceeds of the loan were references to the application of the proceeds of the original loan; and
(b)any restriction under subsection (1) above which applies to any loan which has been replaced shall apply to the loan which replaces it.
(5)M5In this section and sections 361 and 362—
“co-operative” means a common ownership enterprise or a co-operative enterprise as defined in section 2 of the M6Industrial Common Ownership Act 1976; and
“subsidiary” has the same meaning as for the purposes of section 2 of that Act.