Farnborough Airport Properties Company & Anor v Revenue And Customs

The Court of Appeal dismissed the taxpayers' appeal against the Upper Tribunal. The court held that, for the purposes of group relief, the appointment of receivers under a Debenture can amount to "arrangements" within the meaning of section 156(2) read with section 154 of the Corporation Tax Act 2010, and that such arrangements had the effect (Effect 2) of depriving the common parent (Kelucia) of the power to secure that the affairs of the subsidiary (PH2L) were conducted in accordance with its wishes, as required by the statutory definition of "control" in section 1124(2) CTA 2010.

Legal principles: (1) "Control" in section 1124(2) requires the power to secure that the affairs of a company are conducted in accordance with a person's wishes; it is not satisfied merely by underlying shareholding if, in practice, those wishes cannot be implemented while receivers act. (2) "Arrangements" in section 156(2)(a) is broadly defined and includes contractual mechanisms (such as a Debenture which provides for appointment of receivers) so long as the arrangements are in existence and have the specified effect. (3) A receiver's powers to manage and realise assets can be so extensive as to displace shareholder control for the duration of the receivership.

Background and parties: The appellants, Farnborough Airport Properties Company and Farnborough Properties Company (FA and FP), sought group relief from losses surrendered by their fellow 75% subsidiary Piccadilly Hotels 2 Limited (PH2L). HMRC issued closure notices rejecting the claims for accounting periods ending 31 January 2012 and 2013. The dispute concerned whether PH2L remained in the same group after the appointment of receivers on 27 June 2011 by the security trustee under a 2006 Debenture.

Procedural posture: The FTT dismissed the appellants' appeals ([2016] UKFTT 0431 (TC)). The Upper Tribunal dismissed the subsequent appeal ([2017] UKUT 0394 (TCC)). Permission to appeal to the Court of Appeal was granted by Floyd LJ; the Court of Appeal heard the appeal and dismissed it ([2019] EWCA Civ 118).

Nature of the claim / relief sought: (i) The taxpayers sought to establish entitlement to group relief under Part 5 of the Corporation Tax Act 2010 by treating PH2L as a member of the same group for the relevant periods. (ii) HMRC contended group membership was disqualified by s154 because arrangements were in place which had Effect 2 (severance of common control).

Issues framed by the court:

• Whether the appointment of receivers under the Debenture amounted to "arrangements" within the meaning of section 156(2) and therefore s154.
• Whether, as a result of the receivership, the parent (Kelucia) and its shareholders ceased to have "control" of PH2L within the meaning of section 1124(2) CTA 2010, such that Effect 2 was satisfied.
• Whether the Debenture constituted an "other document regulating" the company for the purposes of section 1124(2)(b) (issue considered by the Upper Tribunal but resolved against the appellants on other grounds).

Court's reasoning and conclusion: The court applied a purposive but textually grounded construction of the statutory provisions. It emphasised that the definition of "control" in s1124(2) requires the power to secure that a company's affairs are conducted in accordance with a person's wishes, not merely the formal shareholder position. The appointment of receivers vested extensive powers to manage and realise PH2L's assets and to carry on its business; those powers effectively superseded the board and prevented the shareholders from securing that PH2L's affairs were conducted in accordance with their wishes. Consequently Kelucia lost the practical substance of its shareholder control. The court also accepted the broad statutory definition of "arrangements" in s156(2)(a) and followed established authorities (including Pilkington and related authorities) in treating mechanisms leading to receivership as capable of being such arrangements. Because both conditions were satisfied (arrangements in place and Effect 2 enlivened), group relief was unavailable and the appeals were dismissed.

Subsidiary findings: The court noted that the Upper Tribunal was entitled to find there was no evidence that the receivership was temporary or that the company would resume ordinary shareholder-directed management, and that it was unnecessary to determine whether the receivers themselves alone or jointly with shareholders satisfied the statutory definition of control once shareholder control had been lost.

Appeal dismissed. The Court of Appeal held that appointment of receivers pursuant to the Debenture constituted "arrangements" under section 156(2) and that those arrangements had the Effect 2 described in section 154 because the appointment and the receivers' extensive powers deprived the common parent (Kelucia) of the ability to secure that PH2L's affairs were conducted in accordance with its wishes, so PH2L ceased to be a member of the same group for the relevant periods.

FTT: appeal dismissed, [2016] UKFTT 0431 (TC). Upper Tribunal: appeal dismissed, [2017] UKUT 0394 (TCC). Court of Appeal: permission granted by Floyd LJ; appeal dismissed, [2019] EWCA Civ 118.