Did you know...? Some practical points for companies - August 2013

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Did you know...

………that the Supreme Court has considered the meaning of the "balance sheet" insolvency test in section 123(2) Insolvency Act 1986 in BNY Corporate Trustee Services Ltd v Eurosail-UK 2007-3BL PLC and others [2013] UKSC 28? This insolvency test applies when a company's assets are exceeded by its liabilities, taking into account its contingent and prospective liabilities. The test is relevant not only for creditors applying for winding up orders, but also for parties to finance documents and commercial agreements which contain events of default or termination provisions based on the test. Parties may have difficulty in relying on this type of provision following the case, as the Supreme Court's interpretation may not lead to a clear-cut conclusion as to a company's solvency.

The Supreme Court decided that the test for "balance sheet" insolvency is not an exact test and that it is for the party asserting insolvency to satisfy the court on the balance of probabilities that the company has insufficient assets to be able to meet its liabilities, including prospective and contingent liabilities. The test was not satisfied in the Eurosail case, as the company's ability to pay all its debts could not be determined until much closer to the final payment date (in over 30 years' time). The Supreme Court rejected the Court of Appeal's test that the company must have reached a "point of no return". See our earlier article on the Court of Appeal decision here for more information.

………that the Government has issued a discussion paper here on "enhancing the transparency of UK company ownership and increasing trust in UK business"? With proposals ranging from a new requirement for companies to identify and disclose their major beneficial owners to a review of the role of nominee and corporate directors, the changes (if implemented) could be significant. We will keep you up to date as the proposals develop.

………that HM Treasury has launched a consultation on two new tax reliefs designed to encourage companies with an indirect employee ownership structure? As part of its response to Graeme Nuttall's 2012 report on employee ownership, HM Treasury is consulting on two new reliefs: (1) a capital gains tax exemption for a sale of a controlling interest in a company to an employee benefit trust for the purposes of establishing an indirect employee ownership structure (that is, one where the employees hold a material/controlling interest in their employer company via a trust structure); and (2) an exemption from income tax and NICs for profit-related bonuses paid to employees in a company with an indirect employee ownership structure. The consultation will run until 26 September 2013. Further details can be found here.

Any information contained in this article is intended as a general review of the subjects featured and detailed specialist advice should always be taken before taking or refraining from taking any action. If you would like to discuss any of the issues raised in this article, please get in touch with your usual Olswang contact. This article was included in our Olswang Corporate Quarterly Summer 2013 publication.