A, B and C all own 100% of their respective companies, A Ltd, B Ltd and C Ltd.
These companies each own a 1/3 share in Holdco Ltd.
Holdco owns and rents out a property, and also owns 100% of Tradeo Ltd. The value of Tradeco far outweighs the value of the property, safely makes up much more than 80% of the assets in Holdco.
A company is coming in to buy the shares in Tradeco Ltd. Any disposal will qualify for SSE in Holdco which will then distribute all cash to A Ltd, B Ltd and C Ltd. The property may also be disposed of so we are likely going to be left with 3 companies holding only cash, and an empty Holdco.
My question is would entrepreneurs’ relief be available to A, B and C on the winding up of A Ltd, B Ltd and C Ltd?
On the face of it, these 3 companies meet the definition of “Trading company” under s165A – their only activity has been the acquisition of a significant interest in the share capital of the holding company of a trading group [subsection 4(d)].
However here’s where the complications lie. Initially, A, B and C each owned 1/3 of Tradeco. Over the last three years they have carried out a share for share exchange with Holdco, so that Holdco owned 100% of Tradeco and they owned 1/3 each of Holdco.
Then about 6 months ago (before there was any sign of a potential buyer) they carried out another share for share exchange. This time swapping their shares in Holdco for shares in A Ltd, B Ltd and C Ltd.
Clearance was granted for both transactions.
Does the fact that A Ltd, B Ltd and C Ltd were created for the share for share exchange transactions, and so not set up with the purpose of acquiring trading companies, mean they don’t meet this definition of a trading company?
On the other hand the only activity of A Ltd, B Ltd and C Ltd has been to acquire the holding company of a trading group, in exchange for shares in themselves so I can see an argument both ways.
Does anyone have any opinions on this?