ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL This change is adverse to some taxpayers and favourable to others in principle. But it is expected to have no practical effect as it is in line with current practice.
Change 56: EIS, VCT and share loss relief: the meaning of “a company being in administration”: sections 252 and 331, Schedule 1 (section 312(2A) of ICTA and paragraph 11(10) of Schedule 5 to ITEPA) and Schedule 2Parts 6 and 8 (meaning of company being “in administration”)
This change updates and extends the definition of administration by referring to the meaning within Schedule B1 to the Insolvency (Northern Ireland) Order 1989 (SI 1989/2405 (NI 19)) and adapting this and the meaning within Schedule B1 to the Insolvency Act 1986 to provide for a similar interpretation of an administration outside the UK. The result is that the meaning of a company “in administration” is widely drawn whichever rules on administrations apply.
The change applies to the enterprise investment scheme (EIS) and to venture capital trusts (VCT). The relevant provisions in ICTA are section 312(2A)(a) (EIS) and paragraph 11A(2)(a) of Schedule 28B (VCT). The change also applies to enterprise management incentives (EMI) under Schedule 5 to ITEPA and to share loss relief under Chapter 6 of Part 4 of this Act, because these provisions use the EIS definition of “in administration”.
Paragraph 11(10) Schedule 5 to ITEPA applies section 312(2A) of ICTA to EMI.
Section 576(4A) of ICTA (share loss relief) reads across into the EIS provisions in section 293 of that Act. In rewriting that read across in Chapter 6 of Part 4 of this Act, section 138(5) applies section 252. Section 141(2) applies the definition of “qualifying 90% subsidiary” in section 190 and sections 137(7), 139(2), 140(2) and 142(4) all apply the definition of “qualifying subsidiary” in section 191. Sections 190 and 191 both in turn apply section 252.
Schedule B1 to the Insolvency (Northern Ireland) Order 1989 (SI 1989/2405 (NI 19)) was inserted by Schedule 1 to the Insolvency (Northern Ireland) Order 2005, (SI 2005/1455 (NI 10)) with a commencement date of 27 March 2006 under SR (NI) 2006 No.21 (CI). This new Schedule B1 is the equivalent to Schedule B1 to the Insolvency Act 1986 inserted by the Enterprise Act 2002. Paragraph 1(2) of both Schedules B1 provides that:
“(a)a company is “in administration” while the appointment of an administrator of the company has effect,(b)a company “enters administration” when the appointment of an administrator takes effect.”
So the references to an administration order under Part 3 of the Insolvency (Northern Ireland) Order 1989 in the definition of a company in administration in section 312(2A)(a)(i) of and paragraph 11A(2)(a)(i) of Schedule 28B to ICTA are now out of date.
To remedy this, the opening words and sub-paragraph (i) of section 312(2A)(a) of and paragraph 11A(2)(a) of Schedule 28B to ICTA are replaced in sections 252(2)(a) and 331(2)(a) of this Act by:
“A company is “in administration” if-(a)it is in administration within the meaning of Schedule B1 to the Insolvency Act 1986 or Schedule B1 to the Insolvency (Northern Ireland) Order 1989”
The reference to a “corresponding order” under the law of a country or territory outside the United Kingdom in section 312(2A)(a)(ii) of and paragraph 11A(2)(a)(ii) of Schedule 28B to ICTA is no longer appropriate since there is no reference to “order” in the UK context. The intention is to provide for equivalent legislation so far as this can be expressed. Sections 252(2)(b) and 331(2)(b) of this Act, therefore, provide:
“(b)There is in force in relation to it [the company ] under the law of a country or territory outside the United Kingdom any appointment corresponding to an appointment of an administrator under either of those Schedules.”
There is a similar example of the drafting providing for equivalent legislation outside the UK, so far as this is possible, in section 12(7ZA) of ICTA.