Section 29: Association through a loan creditor
118.This section is the rule that some loan creditors are ignored in determining whether one company controls another. It is new. See Change 3 in Annex 1.
119.Subsection (1) deals with the simple case of a loan creditor which would otherwise be associated with the company to which it has lent money. The subsection sets out the three conditions that have to be met if the loan creditor is to be ignored. The second condition (“no connection”) is amplified in subsection (5).
120.Subsections (2) and (3) deal with the more complex case of two companies which would otherwise be associated with each other because they are controlled by the same loan creditor. The condition in subsection (2)(b) is amplified in subsection(5).
121.Subsection (4) defines “control” for the purpose of subsection (2)(a). The definition is based on section 450 but is modified by subsection (1) of this section (to eliminate some loan creditors) and sections 27 (to prevent attribution of some partners’ rights), 28 (to eliminate some fixed-rate preference shares) and 30 (to eliminate some trustee companies).
122.Subsection (5) sets out the condition in ESC C9 that there is “no past or present connection” between the company and the loan creditor. It reflects the strict interpretation that is used in practice in applying the concession.
123.Subsection (6) imports the definition of “loan creditor” from section 453. Section 453(4) prevents a bank from being treated as a loan creditor just because of an ordinary bank loan.
