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You are here: BAILII >> Databases >> United Kingdom Special Commissioners of Income Tax Decisions >> Fenlo Ltd v Revenue & Customs [2008] UKSPC SPC00714 (06 November 2008) URL: http://www.bailii.org/uk/cases/UKSPC/2008/SPC00714.html Cite as: [2008] UKSPC SPC00714, [2008] UKSPC SPC714, [2008] STI 2674, [2008] STC (SCD) 1245 |
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Spc00714
LOAN RELATIONSHIP – RELEASE – PARAGRAPH 5(3), SCHEDULE 9, FINANCE ACT 1996 – EFFECT OF COVENANTS IN LOAN AGREEMENT – DOES LENDER CONTROL BORROWER FOR PURPOSES OF SECTION 87A FINANCE ACT 1996 – NO – AMOUNT RELEASED BROUGHT INTO CHARGE
THE SPECIAL COMMISSIONERS
FENLO LIMITED Appellant
- and -
THE COMMISSIONERS FOR HER MAJESTY'S
REVENUE AND CUSTOMS Respondents
Special Commissioner: Nicholas Aleksander
Sitting in public in London on 14 October 2008
Oliver Conolly of counsel for the Appellant
Mark Harrison, HM Revenue & Customs Appeals Unit for the Respondents
© CROWN COPYRIGHT 2008
DECISION
Background facts
(1) Interest was charged at 10% per annum (of this, half was compounded and was only due on the repayment of the loan, the other half was payable half-yearly)
(2) The lender was entitled to a "promote" on the repayment of the loan, based on the value of the hotel property at that time
(3) The loan was repayable, at the latest, after 10 years on 19 October 2002
(4) The loan was subject to a number of covenants which I describe in more detail below.
Loan Relationships
… "control", in relation to a company, means the power of a person to secure:
(a) by means of the holding of shares or the possession of voting power in or in relation to the company or any other company, or
(b) by virtue of any powers conferred by the articles of association or other document regulating the affairs of the company or any other company,
that the affairs of the company are conducted in accordance with his wishes.
(1) [Fenlo] shall procure that [Brinkley] shall be furnished with such financial and other information as it may reasonably require relating to [Fenlo], and copies of the Accounts shall be forwarded to [Brinkley] by [Fenlo] when they are circulated to the members of [Fenlo] and monthly management accounts within one month of the end of the period to which they relate.
(2) [Fenlo] shall not without the prior written consent of [Brinkley]:
(a) Create or permit to subsist any charge, mortgage or lien upon its or their undertaking, property or assets or any part thereof except:
(i) any charge, mortgage or lien in favour of [Brinkley];
(ii) any lien arising by operation of law in the ordinary course of trading
(b) Carry on any business other than the operation of the Property as a hotel
(c) Sell, transfer, lend or otherwise dispose of whether by a single transaction or a number of transactions related or not the whole or part of its undertaking, business or (except in the ordinary course of trading) assets
(d) declare make or pay any dividend or other distribution on or in respect of the issued share capital of [Fenlo] or any part thereof
(e) incorporate or acquire any Subsidiary or acquire securities of any company or corporation
(f) purchase, lease or hire any assets otherwise than in the normal course of business
(g) pay remuneration (inclusive of the value attributable to any benefits provided) to any one of its directors, officers or employees in excess of £25,000 per annum
(h) change the external auditors or the Accounting Reference Date or any member of the Company
(i) enter into any transaction with Mr Sidney Taylor or a company or firm in which he or any member of his family has an interest of any kind
(j) enter into any transaction involving:
(i) the borrowing of money
(ii) the extending of credit save in the normal course of business
(iii) giving guarantees or indemnities or undertaking any such liability to any person
(iv) the adoption of any scheme for the sharing of its profits
(k) enter into any transaction otherwise than on arm's length terms
The contentions of the parties
"In order that a person may have 'control' he must be in a position to secure that the affairs of the company are conducted according to his wishes. That phrase means that the ability to achieve an isolated result, the power to carry a particular resolution, is insufficient to establish control in the statutory sense; and that what is required is the power to secure the continuing conduct of the company's affairs in accordance with the will of the person. Secondly the definition does not state that control is the power of a person to secure that the affairs of the company are conducted according to his votes. The use of the word 'wishes' suggests that the Statute requires that he shall be able to achieve his personal aims."
"In my opinion, what the subsection is referring to is real control by one person, so that the company is really his creature."
Conclusions
Decision
Nicholas Aleksander
SPECIAL COMMISSIONER
RELEASE DATE: 6 November 2008
SC/3047/2008
Authorities referred to in skeletons and not referred to in the decision: