669.This section sets out how to apply the tests in this Part that are based on an entitlement to a distribution of assets in a winding up. It is based on paragraph 3 of Schedule 18 to ICTA.
670.The tests in this Part, based on an entitlement to a distribution of assets in a winding up, are in sections 143(3)(c), 144(3)(c) and 151(4)(b). The tests are also applied, by cross-reference, in the rules about small profits relief (see section 33(7)).
671.Subsection (1) sets the scope of the section and introduces company A (the parent) and company B (the subsidiary).
672.Subsection (2) is the basic rule: the proportion of the assets to which company A is entitled is based on what it would get if company B’s net assets at the end of an accounting period were distributed to its equity holders in a winding up. If there are no net assets (or if there is no balance sheet) at the end of that accounting period net assets of a notional amount of £100 are assumed.
673.Subsection (3) identifies the gross assets of company B, from which its liabilities are deducted to arrive at its net assets.
674.Subsection (4) identifies the liabilities of company B, which are deducted from its gross assets to arrive at its net assets.
675.Subsection (5) includes in company A’s entitlement any payment which it would get as an equity holder even if the payment would not otherwise count as a distribution of assets.
676.Subsections (6) and (7) make clear that the section is not concerned with any payments that are repayments of capital. This exclusion affects the calculations of both company B’s gross assets and the amount to which the equity holder is entitled.