Corporate Venturing

Company reorganisations, reconstructions and amalgamations

General

An issuing company may be party to a reorganisation, or to a scheme of reconstruction or amalgamation (such as a take-over or corporate merger). If this results in the shares or securities of another company being issued in exchange for, or in respect of, the issuing company's own shares or securities, shares to which investment relief is attributable are treated as having been disposed of at the time of the reconstruction or amalgamation.

However, in certain circumstances where new shares are issued as a replacement for existing shares, special rules allow the new shares to be treated as if they were the original shares, so that the CVS reliefs are preserved.

The rules are complex and issuing companies intending to undergo this type of reorganisation or reconstruction will normally wish to seek specialist professional advice beforehand, in order to help ensure that their investors' investment relief is not put at risk.

The rules in the Taxation of Chargeable Gains Act 1992 for determining the extent to which any chargeable gains arise in the event of share reorganisations, and company reconstructions and amalgamations, have effect subject to the adaptations made for the CVS.

Special rules for one type of reorganisation

The circumstances in which the special rules apply are where all the shares and securities of the issuing company are exchanged for corresponding shares and securities in a new (' clean') holding company. This type of reconstruction commonly takes place in advance of a company seeking a market listing for its shares.

If certain conditions (outlined below) are met, the holding company takes the place of the issuing company as far as the rules of the CVS are concerned. The new shares, issued in respect of the old shares to which investment relief is attributable, take the place of the old shares. Any claims for investment or deferral relief in respect of the old shares are treated as having been made in respect of the new shares.

The main conditions that must be met are

• the consideration for the new shares must consist wholly of the issue of shares in the new company
• when the new shares are issued there must not be any shares in the old company, other than subscriber shares and any new shares already issued in consideration of old shares
• the consideration for the new shares of each description must consist wholly of old shares of the corresponding description (if they were shares in the same company they would be of the same class and carry the same rights), and
• new shares of each description must be issued to the holders of old shares of the corresponding description in respect of, and in proportion to, their holdings.

We must also have given an approval notification stating that we are satisfied that the exchange of shares under the arrangements will be carried out for genuine commercial reasons and will not form part of a scheme or arrangement for tax avoidance.

'Reorganisation' for this purpose has the meaning in section 126 of the Taxation of Chargeable Gains Act 1992.

Can investment relief be obtained for a 'rights issue'?

A 'rights issue' is treated for CVS purposes as an issue of shares which is entirely separate from the original shares that provided the rights to subscribe for them. If the investing company subscribes for shares in a rights issue, it can obtain investment relief for those shares if the conditions of the CVS are met in relation to the issue. The attribution of investment relief given to shares comprised in a rights issue does not affect the attribution of investment relief (if any) to the original shares.