LOSS SURRENDER PROVISIONS UNDER COURT SCRUTINY
The High Court has examined provisions under the Income and Corporation Tax Act 1988 that entitles companies to surrender losses to benefit subsidiaries that are in profit, thereby benefiting the group.
In a case involving a joint venture hospital construction project in Cumbria, in which Health Management (Carlisle) plc (HMC) was the corporate vehicle, the court considered the treatment of benefits obtained by subsidiaries that were eventually sold by the parent company.
HMC made losses of more than £4m, and, pursuant to the agreement, made these equally available to the other companies in the joint venture, AMEC and Interservefm Ltd. Interservefm had no profits, but it surrendered the losses on to two of its subsidiaries. One of these was Omnisure Property Management Ltd, which used the losses to obtain tax savings of around £368,000.
Interservefm subsequently sold Omnisure, and sought to recover the £368,000 under a provision in the sale agreement requiring the “repayment of all inter-company debt”.
Langley J has now ruled that Interservefm’s claim had “no real prospect of success”, and has granted summary judgment to Omnisure. He said:
“The simple fact is that at the time the losses were surrendered to the defendant, not only was the claimant itself not able to use them, but the group of which the claimant was the holding company benefited from them to the full extent, as no doubt the claimant intended.”
Interservefm Ltd v Omnisure Property Management Ltd Commercial Court (Langley J) 23 March 2004.
Andrew Thornton (instructed by Clifford Chance) appeared for the claimant; Simon Colton (instructed by Kilpatrick Stockton) appeared for the defendant.
References: EGi Legal News 24/3/04
