VCM15080 - Investee companies: effect of liquidation

ICTA/S293 (5) & (6); ITA/S182 (3) & (4); ITA/S312; FA00/SCH15/PARA24

If a resolution is passed, or an order is made, for the winding up of the company (or any other act is done for the same purpose), or if the company is dissolved without winding up, the company will fail to satisfy at least one of the conditions which apply to it.

However, this failure will be disregarded where the winding up or dissolution is for genuine commercial reasons, and not part of a scheme or arrangement for avoiding tax.

The usual ‘genuine commercial reason' for winding up a company will be that it is insolvent or is likely to become insolvent. The effect of this provision is therefore that although, if it is forced to stop trading because of insolvency, a company will necessarily cease to satisfy the conditions, it can safeguard its investors' reliefs by immediately going into liquidation.