Company reconstruction/buy back of own shares

Company reconstruction/buy back of own shares

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HMRC has rejected a clearance application on their interpretation that under S691(2) CA 2006, any payment for the shares must be made in cash and not, as we had intended, by a transfer of property.  I read Park J’s comments in the BDG Roof-Bond Ltd v Douglas [2000] 1 BCLC 401, although I accept that his comments were obiter.

Has anyone else experienced any flexibility in HMRC’s stance?  CT will be paid on the market value transfers so if anything, HMRC would be better off.

The client might consider a reduction of capital.  I know there is no formal clearance application for this but wondered whether anyone has had any positive feedback from HMRC in this regard?

The only other possibilities I can come up with are multiple completions, or as the company does have cash, it might be possible to distribute cash and then for the other party to buy the property at market value using that cash.  However, the company needs the cash to enable it to continue to trade and so the remaining shareholders would require some sort of binding agreement for the purchase before they went ahead with the cash distribution.   

In those circumstances, would I have to declare the existence of that commitment when making a fresh clearance application under the cash route to HMRC?

Thanks.

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By gbuckell
19th Jan 2012 14:19

Set off

As you suggest, have two contracts - a purchase of own shares for cash and a sale of a property for cash. Contracts can be signed at the same time for certainty. If cash is available it can go round in a circle but I doubt whether HMRC would insist on this. Yes, do disclose it to HMRC. You could probably ring up HMRC and ask whether this is acceptable prior to submitting a new application. I would be surprised if they say no.

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