Schedule 9 - Chargeable gains: share exchanges
Finance Bill
12:15 pm
Ms Ruth Kelly (Economic Secretary, HM Treasury; Bolton West, Labour)
I cannot support amendments Nos. 71 to 76, but I hope to persuade the hon. Gentleman that they are not necessary.
A company may wish to simplify its capital structure as it goes through a scheme of reconstruction, and the amendments are designed to facilitate that. However, various arrangements that are already in place and which meet the requirements in the Bill will enable a company's structure to be simplified in that way. For instance, the company can reorganise its capital structure before starting the scheme of reconstruction, or the successor company can reorganise its capital structure afterwards. We have included provisions in the Bill to allow for such changes.
I should also note that the meaning of ordinary share capital is quite wide. For example, participating preference shares can count as part of a company's ordinary share capital. Some companies with preference shareholders will, therefore, have no difficulty in simplifying their share capital.
I do not oppose amendments Nos. 71 to 76 simply because companies can already effect a scheme of reconstruction by making arrangements fit their circumstances. The problem is that the amendments would have the undesirable effect of widening the scope of what is a reconstruction of a company beyond reasonable bounds. The essential feature of such a scheme is that those who effectively own the business before the reconstruction are still the owners afterwards. We have preserved that key concept in the new provisions by requiring that only holders of ordinary shares receive ordinary shares in the arrangements for the reconstruction. It is the holders of ordinary shares who own the business, because they are entitled to the profits.
That essential feature of reconstructions has received long-standing approval from the courts and we should not abandon it, but that is what amendments Nos. 71 to 76 would do. They would allow debenture holders and others who are not co-owners of the business to acquire an ownership stake. Arrangements whereby the ownership of a business is passed to someone else could then be structured as schemes of reconstruction and would benefit from the capital gains rollover treatment that applies to such schemes. For that reason, I must ask the Committee to reject the amendments.