CTM36850 - Particular topics: transactions in securities: liquidation

An ordinary liquidation (in which a company is wound up following the complete cessation of its business or the transfer of that business to a person unconnected with its original shareholders) is not within the scope of this avoidance legislation. This legislation can however apply to counteract a tax advantage obtained in consequence of the combined effect of a transaction in securities and the liquidation of a company.

Example

A is the sole shareholder of trading company X that has £1m cash representing its undistributed profits. A subscribes for shares in new company Y. Company X transfers its trade and assets (but not the cash) to Company Y which continues to carry on the trade.

Company X is put into liquidation and the cash paid as a capital distribution to A.

A receives a tax advantage in Circumstance D CTM36840 in consequence of the combined effect of the transaction in securities and the liquidation of a company (except to the extent that it represents the return of the amounts subscribed for the share capital in X).

When considering applications for dissolution under the Companies Act to be treated as the equivalent of a distribution in a formal winding up under ESC C16 the instructions at CTM36220 are to be followed and cases within CTM36875 referred to AAG Clearance & Counteraction Team.