Sale of lessor companies and similar arrangements: establishing change of ownership: qualifying change of ownership
CTA2010 Section 392 to 398
The sale of lessors legislation is triggered when there is a complete or partial change in the ownership of a lessor company. This may happen, for example through:
- the sale of all or some of the shares in the lessor company;
- the sale of all or some of the shares in the lessor’s immediate (or higher) parent company;
- equity dilution where the lessor company issues many shares to the ‘purchasing’ group so that it gains a (probably very large) majority interest; or
- the granting of an option over shares entitling a third party to obtain control over the lessor company.
The test to see whether there has been a change of ownership of the lessor company focuses on changes in the relationship between the lessor company and the top company in a structure (typically the parent in a group, but the legislation caters for more complex situations, including consortia).
The legislation looks for a ‘qualifying change of ownership’ by the top company in relation to company A, the lessor company.
A ‘qualifying change of ownership’ happens when there is a ‘relevant change in the relationship’ between company A, the lessor company, and a ‘principal company’ of company A, the top company in a structure.
You must therefore determine
- which company is a principal company in relation to company A (see BLM80310 for groups and BLM80319 for consortia), and
- whether there has been a relevant change in the relationship between the two companies (see BLM80315).
In most instances it will be obvious that a lessor company has changed ownership. Sales are usually outright sales of all the shares in the lessor company and the lessor company is usually a 100% subsidiary of the parent. But the legislation covers partial sales and consortia to prevent the fragmentation of ownership of a lessor company in order to sidestep the provisions.