VCM69520 - VCT: mergers: to which the rules apply
SI2004/2199 Regulations 1, 2 & 9: ICTA88/SCH33/PARA10
SI2004/2199 seeks to ensure that the merger of two or more VCTs
does not adversely affect investors’ and the VCTs’ tax
reliefs.
The Regulations apply to mergers that:
- result from transactions that took place on or after 17 April 2002,
- involve two or more companies that were VCTs immediately before the merger, and
- have the prior approval of HMRC ( VCM69530).
Meaning of ‘merger’ and ‘successor company’
For the purposes of SI2004/2199 a merger is where:
- shares in one of the merging companies (Company A) are issued to members of the other merging company (or companies):
- in exchange for shares in that other company (or companies) (example 1),
or
- in consideration for the transfer of all or part of the business of that other company (or companies) to Company A (example 2).
There is also a merger where:
- members of the merging companies are issued with shares in a company (Company B) that is not one of the merging companies:
- in exchange for their shares in the merging company (example 3),
or
- in consideration for the transfer of all or part of the business of the merging company to Company B (example 4).
For the purposes of SI2004/2199 an exchange of shares may take
place as part of a merger resulting from a scheme of reconstruction
such as those defined in TCGA92/SCH5AA. Such arrangements include
compromises or arrangements under Section 425, Companies Act 1985
(‘S425 arrangement’) (CG52725).
It is likely that mergers of VCTs will commonly result from a
S425 arrangement since approval of such a scheme requires the
approval of only a 75% majority of shareholders, in which case all
shares will be transferred or vested by court order. A formal
take-over requires approval of a 90% majority before the acquirer
can obtain all the shares in a target VCT. A merger brought about
under a S425 arrangement is illustrated at example 5.
Examples
| Example 1 | Investors with shares in VCT1 are issued with shares in VCT2 in exchange for their shares in VCT1 |
| Example 2 | Investors in VCT1 retain
their existing shares and are issued with shares in VCT2, to which
the business and assets of VCT1 are transferred
|
| Example 3 | Investors with shares in VCT1 and VCT2 are issued with shares in VCT3 in exchange for their shares in VCT1 and VCT2 |
| Example 4 | Investors in VCT1 and
VCT2 retain their existing shares and are issued with shares in
VCT3, to which the business and assets of VCT1 and VCT2 are
transferred
|
| Example 5 | In a S425 arrangement,
pursuant to a court scheme, VCT2 issues shares to investors with
shares in VCT1 in respect of their holdings in VCT1. Their shares
in VCT1 are cancelled and the reserve produced is used to pay up
new shares issued to VCT2, thus producing an exchange of shares in
VCT1 for shares in VCT2
|
