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HMRC internal manual

General Insurance Manual

Taxation of general insurance: insolvency

The liquidator of a life insurance company has a statutory duty to continue the company’s trade if he is able to do so. There is no such rule for general insurance, and the normal presumption will apply that any trade that is being carried on immediately before the start of a liquidation will then cease. Insolvency practitioners will often choose not to put insurance companies into liquidation, but to make use instead of Schemes of Arrangement under Part 26 of the Companies Act 2006 (formerly section 425 Companies Act 1985). The administrator of such a scheme can enter into compromise arrangements with creditors more easily, and thus finalise the company’s affairs more quickly, than a liquidator. The replacement of the normal method of settling claims by an unusual method of compromise with creditors as part of such a scheme does not necessarily imply that the company has ceased trading. The factual position should be tested against the criteria in GIM4190.

The administrators under a Scheme of Arrangement acquire full control of the company’s business. Consequently, the appointment of UK resident administrators to a foreign company will normally result in the company becoming resident in the UK for tax purposes under our domestic law by virtue of the fact that its central management and control will be located here. Similarly, residence of the company is likely to be attributed to the UK by a tie-break provision in a double tax treaty that follows the OECD model, and so based on the place of effective management of the company.