Guinness Plc v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judgment Date | 10 December 1993 |
| Date | 10 December 1993 |
| Court | Chancery Division |
Chancery Division.
Rattee J.
Andrew Park QC (instructed by Freshfields) for Guinness.
Christopher McCall QC and Nicholas Warren QC (instructed by the Solicitor of Inland Revenue) for the Crown.
The following cases were referred to in the judgment:
Ingram v IR Commrs ELRTAX[1986] Ch 585; [1985] BTC 8088
Ramsay (WT) Ltd v IR Commrs ELR[1982] AC 300
Rothschild (J) Holdings plc v IR Commrs TAXTAX(1987) 61 TC 188; [1987] BTC 8014
Capital duty - Exemption - Allotment of shares - Share exchange by which company acquired at least 75 per cent of share capital of another company for shares in acquiring company and cash amounting to more than ten per cent of total consideration - Block allotments split between shares acquired for shares and shares acquired for cash - Whether allotments for shares attracted exemption - Finance Act 1973 section 47 schedule 19 subsec-or-para 10Finance Act 1973, s. 47, Sch. 19, para. 10(2)(b) (capital duty was abolished by theFinance Act 1988 section 141Finance Act 1988, s. 141).
This was an appeal by Guinness plc pursuant to the Stamp Act 1891,Stamp Act 1891 section 13s. 13 against an assessment to capital duty under the Finance Act 1973, Finance Act 1973 section 47s. 47 in respect of allotments of shares made to shareholders of Distillers Co plc ("Distillers") pursuant to an offer for all the shares in Distillers for consideration partly in Guinness shares and partly in cash.
In 1986 Guinness made an offer to acquire all the issued share capital of Distillers. The offer was communicated to all shareholders of Distillers in an offer document dated 3 March 1986. For every three Distillers shares, the Distillers shareholders were offered five Guinness stock units and 516p in cash, or, alternatively, the Distillers shareholders were given the option to elect to receive convertible preference shares or additional Guinness stock units instead of the cash element in the offer, or to receive all cash.
The offer document contained a term ("the transfer arrangements") that the execution of the form of acceptance constituted, subject to the offer becoming unconditional, the irrevocable appointment of a director of one of Guinness's bankers as the accepting shareholder's attorney with powers to execute forms of transfer or other documents in relation to the Distillers shares.
The offer was declared unconditional on 18 April 1986 and on 22 April a committee of the board of Guinness recorded that the acceptances of the offer together with the Distillers shares already held by Guinness amounted to more than 75 per cent of Distillers' share capital. It was resolved that the appropriate number of ordinary shares and convertible preference shares in Guinness be allotted to the Distillers shareholders who had elected to receive them and directed that forms of transfer should be executed pursuant to the terms of the transfer arrangements.
Similar resolutions for the allotment of further ordinary or convertible preference shares were passed between 9 May and 12 September.
On 3 September a bank director, as attorney for Guinness, executed five block transfer forms transferring Distillers shares in quantities corresponding to the several elements of consideration. Before the block transfer forms were executed calculations had been made to determine how many of each accepting Distillers shareholder's holding of Distillers shares were to be allocated to cash; how many to Guinness stock units; and how many to convertible preference shares. The allocations were made under the discretion given by the transfer arrangements.
Guinness claimed the exemption from capital duty under theFinance Act 1973 section 47Finance Act 1973, s. 47provided by Finance Act 1973 schedule 19 subsec-or-para 10Sch. 19, para. 10 in respect of the allotments of Guinness stock units and convertible preference shares made between 22 April and 12 September 1986.
It was accepted by Guinness that, unless the exemption applied, capital duty would be payable and that the sole purpose of the transfer arrangements provided for in the offer document was to obtain the benefit of the exemption. The Revenue did not accept that the exemption applied to the allotments and assessed capital duty in the sum of £20,766,437.
The only question for decision was whether the condition inFinance Act 1973 schedule 19 subsec-or-para 10Sch. 19, para. 10(2)(b), that the cash element in the consideration for the share exchange should not exceed ten per cent, was satisfied in respect of the resolutions which allotted new shares in Guinness under the terms of the offer for Distillers.
Guinness contended that the availability of the exemption might depend on a point of form rather than substance and that the relevant "transaction" was each resolution to allot shares rather than the take-over transaction as a whole. The effect of the inclusion of transfer arrangements was that (except in the case of Distillers shareholders who opted for consideration only in shares or only in cash) the appropriate consideration of shares and cash due to the accepting shareholders fell to be and was apportioned between separate blocks of Distillers shares. The result was that the only shares acquired by Guinness by virtue of each of the allocations were acquired for a consideration exclusively in shares. Therefore, in respect of each allocation the condition in Finance Act 1973 schedule 19 subsec-or-para 10Sch. 19, para. 10(2)(b) was satisfied and accordingly each allotment was an exempt transfer withinFinance Act 1973para. 10.
Held, dismissing Guinness's appeal:
The contract constituted by the offer and its acceptance was an indivisible contract for the transfer of all the Distillers shares held by the accepting shareholders for a composite consideration consisting of new stock units and cash, except to the extent that the accepting shareholders exercised one of the options to take all cash or all stock units or a mixture of stock units and preference shares. The fact that the contract was a single contract for the acquisition and disposal of all the Distillers shares for one composite consideration was not altered by the inclusion and operation of the transfer arrangements in the offer document. Although separate transfers were executed in respect of the different elements in the consideration for the Distillers shares, the contract remained a contract to acquire all the shares for a combination of Guinness shares and cash in excess of the ten per cent tolerance specified in Finance Act 1973para. 10(2)(b).
1. By an offer made on 3 March 1986 ("the offer"), Guinness plc ("the appellant") offered to acquire all the issued share capital of the Distillers Co plc ("Distillers"). A copy of the offer document is exhibit A hereto, a brief summary of which is as follows:
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(a) For every three ordinary shares of 50p each in Distillers, the appellant would issue five Guinness stock units of 25p each and in addition pay the sum of £5.16 in cash ("the basic offer").
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(b) A Distillers shareholder accepting the offer had the right to make an election, ("the convertible preference share election"), to receive Guinness convertible preference shares of £1 each instead of all, or part, of the cash element of the offer, subject to a maximum availability of 300m of such shares.
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(c) A Distillers shareholder accepting the offer had the right to make an election ("the ordinary share election") to receive additional Guinness stock units instead of all, or part, of the cash element of the offer, to the extent that other accepting Distillers shareholders elected to receive cash instead of Guinness stock units.
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(d) A Distillers shareholder accepting the offer had the right to make an election ("the cash alternative") to receive cash instead of any Guinness stock units to be issued pursuant to the basic offer.
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(e) By paragraph (iv)(a) of Pt. B of Appendix IV each accepting Distillers shareholder irrevocably appointed any director of Morgan Grenfell & Co Ltd or of British Linen Bank his attorney and mandatory to execute, inter alia, any forms of transfer of his Distillers shares, with power to execute and deliver two or more transfers in respect of his Distillers shares pursuant to an allocation, on such basis as the attorney and mandatory might think fit, of the Distillers shares among the Guinness stock units, and/or the Guinness convertible preference shares, and/or the cash to which the accepting shareholder might become entitled under the offer.
2.1 The offer was declared unconditional on 18 April 1986 with the result that on that date the appellant became the beneficial owner of all Distillers shares in respect of which forms of acceptance had been received. By 9 am on 22 April 1986, forms of acceptance had been received in respect of so many Distillers shares as, together with the Distillers shares already held or otherwise acquired by the appellant, amounted to more than 75 per cent of the issued share capital of Distillers, in consequence of which the appellant was the beneficial owner of more than 75 per cent of the issued share capital of Distillers.
2.2 Pursuant to the terms of the offer document the appellant made the following allotments recorded on Forms PUC 3 ("the returns").
[Allotments of Guinness stock units and Guinness convertible preference shares between 22 April and 12 September 1986 were listed.]
2.3 The resolution of 20 August 1986 mistakenly allotted 1469 Guinness stock units. By resolution of 30 September 1986 the allotment of 1469 Guinness stock units was cancelled.
2.4 A copy of the minutes, or where appropriate, extracts from the minutes of the board meetings of the appellant held on 22 April 1986 and 30 September 1986 inclusive, as supplied to the Revenue, was exhibited.
2.5 On 3 September 1986 five block transfer forms were executed by a director of Morgan Grenfell plc as...
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