Finance (No. 2) Act 2005

Part 4 Schemes involving hybrid effect and connected persons

Schemes involving hybrid effect and connected persons

9 A scheme falls within this Part if it satisfies the requirements of paragraph 10 or 11.

Scheme including issue of shares not conferring a qualifying beneficial entitlement

10 (1) A scheme satisfies the requirements of this paragraph if it includes the issue by a company to a person connected with the company of shares other than shares falling within sub-paragraph (2).

(2) Shares issued by a company fall within this sub-paragraph if—

(a) on their issue, they are ordinary shares that are fully paid-up,

(b) at all times in the accounting period of the company in which the issue takes place, the shares confer a qualifying beneficial entitlement, and

(c) when the issue takes place, there is no arrangement or understanding under which the rights attaching to the shares may be amended.

(3) A share in a company confers a qualifying beneficial entitlement if it confers a beneficial entitlement to the relevant proportion of—

(a) any profits available for distribution to equity holders of the company, and

(b) any assets of the company available for distribution to its equity holders on a winding-up.

(4) For the purposes of sub-paragraph (3) the relevant proportion, in relation to a share, is the same as the proportion of the issued share capital represented by that share.

(5) Schedule 18 to ICTA (equity holders and profits or assets available for distribution) applies for the purposes of sub-paragraph (3) as it applies for the purposes of section 403C of ICTA.

Scheme including transfer of rights under a security

11 (1) A scheme satisfies the requirements of this paragraph if it includes a transaction or a series of transactions under which a person (“the transferor”)—

(a) transfers rights to receive a payment under a relevant security to one or more other persons, or

(b) otherwise secures that one or more other persons are similarly benefited,

and sub-paragraphs (3) and (4) are satisfied.

(2) A person is similarly benefited for these purposes if he receives a payment which would, but for the transaction or series of transactions, have arisen to the transferor.

(3) This sub-paragraph is satisfied if—

(a) the transferor, and

(b) at least one of the persons to whom a transfer of rights is made or a similar benefit is secured,

are connected with each other.

(4) This sub-paragraph is satisfied if following the transfer of rights or the securing of the similar benefit—

(a) two or more persons either hold rights to receive a payment under the security or enjoy a similar benefit, and

(b) the rights held and benefits enjoyed by such of those persons as are connected have, taken together, a value equal to or greater than the value of any other rights to receive a payment under the security and of any other similar benefits, taken together.

(5) In sub-paragraph (4)(b) references to the value of rights to receive a payment under a relevant security are references to the market value of those rights; and references to the value of similar benefits are to be construed accordingly.

(6) In this paragraph a relevant security is—

(a) a security (within the meaning of Part 6 of ICTA), or

(b) any agreement under which a person receives an annuity or other annual payment (whether it is payable annually or at shorter or longer intervals) for a term which is not contingent on the duration of a human life or lives.

Interpretation

12 Section 839 of ICTA has effect for the purposes of this Part.