Farnborough Airport Properties Company & Anor v Revenue And Customs

For group relief purposes, control requires more than a continuing shareholding or constitutional right. Under the Corporation Tax Act 2010, the person must retain the power, through the statutory means, to secure that the company’s affairs are conducted in accordance with that person’s wishes. Receivers appointed over a company’s whole undertaking, with powers to run its business, may deprive shareholders of that practical control even though their constitutional rights remain. Arrangements are interpreted broadly and may include a receivership created under a debenture. The legislation is not confined to artificial tax-avoidance schemes or transfers outside a group. Once the arrangements produce control of one group company but not the other, the statutory disqualification applies.

Farnborough Airport Properties Company and Farnborough Properties Company appealed against the dismissal of their claims to group relief for losses surrendered by their fellow subsidiary, Piccadilly Hotels 2 Limited. Piccadilly Hotels 2 entered receivership under a debenture. The First-tier Tribunal dismissed the appeals: [2016] UKFTT 0431 (TC). The Upper Tribunal dismissed the further appeals: [2017] UKUT 0394 (TCC).

The companies argued that their common parent, Kelucia Limited, retained shareholder control of Piccadilly Hotels 2 and that the receivership was not an arrangement for the purposes of section 154 of the Corporation Tax Act 2010. The central issues were whether shareholder control had been lost and whether the receivership constituted arrangements producing the statutory control-severance effect.

1. Disposition. Henderson LJ delivered the leading judgment. Baker LJ and Floyd LJ agreed. Both appeals were dismissed unanimously.
2. Control. Section 154 applied only because the companies would otherwise have been members of the same group. The definition of control in section 1124(2) required the power, through shareholding, voting power, or powers conferred by articles or another regulating document, to secure that the company’s affairs were conducted in accordance with the controller’s wishes. The final practical requirement was independent. Control was not confined to constitutional matters or reduced to the existence of voting rights.
3. Receivership. The receivers had been appointed over the whole property and undertaking of Piccadilly Hotels 2. Their powers included realising the company’s property and carrying on its business. Although the shareholder structure and constitutional rights remained unchanged, the receivers superseded the board in managing the company. On the facts, and in the absence of evidence that the company was likely to resume operation as a going concern, the shareholders could no longer secure that its affairs were conducted according to their wishes. Their constitutional control therefore had no practical substance. The receivers’ agency was ancillary to realising the security and did not enable the directors or shareholders to direct the receivers.
4. Arrangements and effect. Arrangements under section 156(2)(a) had a broad meaning. The appointment and conduct of the receivers pursuant to the debenture involved deliberate contractual planning and fell within the definition. Section 154 was not limited to artificial tax avoidance or to arrangements transferring a company outside its economic group. The relevant limitations were found in the specified statutory Effects. Kelucia retained control of the claimant companies but lost control of Piccadilly Hotels 2, so Effect 2 was satisfied. It was unnecessary to determine whether the receivers themselves had control, alone or jointly with the shareholders.

• Court of Appeal (Civil Division): Both appeals dismissed. [2019] EWCA Civ 118.
• Upper Tribunal (Tax and Chancery Chamber): Appeals dismissed. [2017] UKUT 0394 (TCC); [2017] STC 2293.
• First-tier Tribunal: Appeals dismissed. [2016] UKFTT 0431 (TC); [2016] SFTD 826.