Company reconstructions: shareholder: Investment Trust and Unit Trust reconstructions
Section 136 can apply where the holding in an Investment Trust or Unit Trust is cancelled and the shareholders or unit holders receive shares or units in a new Investment Trust or Unit Trust.
Slogro Fund is an authorised unit trust and the participators have agreed to wind up the fund. Some participators wish to realise their investment on the winding up whilst others wish to continue their investment in another investment trust company. Each participator elects as appropriate and as part of the scheme of reconstruction the existing units are reorganised into A and B units.
The A units carry rights to the holding and management of the assets that are to be retained to distribute cash to those unit holders who wish to realise their investment. (These unit holders will receive a capital distribution treated as a disposal of Units by Section 122 TCGA/92). The B units carry rights to the holding and management of assets that are to be transferred to an investment trust company. On the winding up of the fund this part of the unit trust’s business is merged with that of an existing investment trust company which issues ordinary shares to the holders of B units in proportion to their respective holdings.
The first condition of Sch 5AA is satisfied as another company has issued ordinary shares to the person holding the class of ‘ordinary share’ (the B units) in the original ‘company’ (the unit trust) involved in the scheme of reconstruction. As indicated at CG 52720 you can assume that the second condition of Sch 5AA is met. The third condition of Sch 5AA is also met, as the class of “ordinary shares” that is involved in the scheme of reconstruction is the B units and, under paragraph 4(4) of Schedule 5AA, the holding and management of assets relating to the A units is disregarded. We can also disregard any funds that are retained to meet liabilities and liquidation costs. Therefore the successor company can be treated as carrying on substantially the whole of the business of the original company and the 3rd condition of Sch 5AA is met.
TCGA92/S136 will apply to the persons holding the B units. TCGA92/S139 does not apply to the transfer of Slogro Fund’s business to the investment trust company. Section 139(4) specifically excludes that Section from applying to such cases as Slogro Fund is an authorised unit trust. (Authorised unit trusts are not liable to corporation tax on chargeable gains - TCGA92/S100(1)).