Appointment of receiver broke group relief group

Insolvency Bitesize - March 2019

The Court of Appeal has held that the appointment of a receiver over the assets of a company meant that the company could no longer surrender losses to other companies within the group of which it had been a member.

The Court of Appeal in Farnborough Airport Properties Company v HMRC [2019] EWCA Civ 118 held, confirming the Upper Tribunal’s decision, that the receiver’s appointment constituted arrangements for the company to cease to be under the same control as the other members of the group for the purposes of "Effect 2" of Section 154(3) CTA 2010.

The company, PH2L, was a sister company to the appellants: they all shared a common parent. A receiver was appointed over the whole of PH2L’s property under a pre-existing deed of debenture. The appellants sought to claim group relief from PH2L for periods after the appointment of the receiver. HMRC rejected the claims, arguing that the appointment of the receiver meant that the common parent no longer had control of PH2L.

Lord Justice Henderson delivered the only judgment of the court, with which the others agreed. He considered that:

  • Loss of control - the appointment of the receiver did result in the common parent losing control of PH2L. He noted, in particular, that the “control” test is only relevant if the two companies concerned would otherwise be members of the same group, i.e. would meet the 75% subsidiary test. Parliament must therefore have intended the “control” test to go further, i.e. to require the affairs of the company to actually be conducted in accordance with the shareholders’ wishes. It was not permissible for this requirement to be “ignored or treated as an automatic consequence of the possession of a majority shareholding or voting power”.

    In this case “although the constitutional framework of shareholder control remained in place, it had no substance while the receivership continued”.

    The question of “control” had to be addressed on a continuing basis, from accounting period to accounting period. Thus, although the grant of the debenture did not trigger Effect 2 (because the directors remained in full control unless and until the receivers were appointed), after the appointment the position changed.
  • Arrangements - the appointment of the receivers and their subsequent conduct of the receivership clearly did constitute “arrangements” for these purposes, bearing in mind the broad meaning of the term. There was no scope for a “purposive” interpretation, allowing it to be read more restrictively so as to only apply in cases of avoidance.

The decision of the court may be disappointing for some taxpayers. However, it should not be taken as establishing a universal rule that all receiverships result in a breaking of a group relief group. In coming to its conclusion, the court took note of the seemingly unlimited duration of the receivership. It is possible that a different outcome would arise in other factual situations.