Commentary on Sections Overview Chapter 5: Continuity of treatment on transfers within groups Section 627: Meaning of company replacing another as party to derivative contract
1714.This section gives a particular example of what the reference in section 625(1) to one company replacing another as a party to a derivative contract means. It is based on paragraph 28(4) of Schedule 26 to FA 2002.
1715.The commonest way in which one company may replace another as a party to a derivative contract is by the assignment of the rights and liabilities under the contract. But there may be other types of transaction that have the same effect.
1716.This section ensures that, if the company referred to as the transferee in section 625 becomes a party to a contract whose rights and liabilities are equivalent to those of the contract to which the company referred to as the transferor in that section has ceased to be a party, the transferee is treated as having replaced the transferor in respect of the derivative contract. A novation is an example of this.
1717.This section still applies in the event of the transferor again becoming a party to the original contract (that is, a contract to which it had previously ceased to be a party).