© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
H6a. Actual control of a company
GENERAL
- Relevance of answers in different statutory contexts
"[126] We do not ourselves see these cases as casting any real light on how s.435 IA 1986 should be interpreted. The statutory provisions and contexts are too different. The 1937 and 1939 legislation with which the Courts were concerned in Bibby, Silverts and Berendsen referred simply to "a controlling interest" in a company. Section 435 IA 1986, by contrast, is an elaborate provision under which a multitude of individuals and companies can potentially be considered to be "associates" simultaneously. Whereas, moreover, a "controlling interest" presumably had to be one commanding a majority of the votes attaching to a company's shares, someone can be "taken as having control" under s.435 with no more than a third of the voting power (see s.435(10)(b)). In fact, it would seem that a person could be deemed to have control in the context of IA 1986 if, say, he held just 35% of the shares in a company which in turn held 35% in a company holding 35% in another company with a 35% holding in a yet further company. Plainly, Parliament did not wish s.435(10) (and thus s.435(7)) to bite only on people or entities who control a company in practical terms. It was evidently Parliament's intention that s.435(7), and the term "associate" more generally, should have a wide meaning for the purposes of, for example, the preference and transaction at an undervalue provisions (see e.g. ss.239(6), 240(1)(a) and 249(b) IA 1986)." (Granada UK Rental and Retail Ltd v. The Pensions Regulator [2019] EWCA Civ 1032)
Scope of operation
- s.450 control (stronger anti-avoidance due to various deeming provisions)
Corporation tax
- Definition of "close company" — CTA 2010 ss.439–454 (s.450 itself).
- Close company loans to participators and arrangements conferring benefit on participators — CTA 2010, ss.455–464A.
- Close investment-holding companies (affects entitlement to the small profits rate) — CTA 2010 s.34(2)–(5).
- "Associated companies" test for the small profits rate, FY2023 onwards — CTA 2010 s.18E.
Income tax
- Charge on an individual when a close company loan to a participator is released or written off — ITTOIA 2005 Part 4, Chapter 6, ss.415–421.
- VCT "control and independence requirement" for qualifying holdings — ITA 2007 s.296, with s.313(4) expressly overriding the Act's usual default in favour of ss.450–451
- Control in the context of determining connection through common control (ITA s.993, s.994 apart for s.993(3)(e)).
IHT
- Apportionment of value transferred by a close company among its participators — IHTA 1984 ss.94–102 (through use of CTA 2010 close company definition).
SDLT
- 2% non-UK resident surcharge's "non-UK control" test for companies — FA 2003, Schedule 9A, paragraph 9.
- Group relief anti-avoidance: "controlling director" and connected-persons tests used when relief is withdrawn — FA 2003, Schedule 7, paragraphs 4ZA(8), 5(4) and 9(5)(b).
- s.1124/995 control (actual control)
Corporation tax
- General "connected persons" rule — CTA 2010 s.1122(6)(e), cross-referring to s.1124.
- Group relief (arrangements for a person to obtain control of one company but not the other) - CTA 2010, s.154;
Income tax
- General "connected persons" rule — ITA 2007 s.993(3)(e), cross-referring to s.995 (but note that s.450 applies for other purposes - s.994(1))
- EIS "control and independence requirement" — ITA 2007 s.185 (Part 17 default, s.995).
- SEIS "control and independence requirement" — ITA 2007 s.257DG, Part 5A.
Employment
- Tax-advantaged employee share scheme company-status/control tests — EMI (Schedule 5), CSOP (Schedule 4), SAYE (Schedule 3), SIP (Schedule 2), all via ITEPA 2003 s.719, which imports the s.995 meaning throughout ITEPA "unless otherwise indicated"
CGT
- General "connected persons" rule — TCGA 1992 s.286(6) and s.286(3A)(b), the latter expressly citing "section 1124 of CTA 2010".
Pensions
- Registered pension scheme "connected persons" test (relevant to unauthorised payments and tax-relievable investments) — Finance Act 2004 s.161(8), applying the ITA 2007 s.993 definition, which relies on s.995 control
S.450: ACTUAL CONTROL
- Other control tests
- Loan relationships (s.1124/s.995 in adapted form) - CTA 2009, s.472
- Section 450 begins with the ordinary meaning of control
"[10] It will be seen that although this definition starts in subsection (2) with a concept of control which reflects its meaning in ordinary speech ("a person shall be taken to have control of a company if he exercises, or is able to exercise or is entitled to acquire, direct or indirect control over the company's affairs"), that fairly simple notion is enormously widened by subsequent subsections...
...
[19]...If real control were to be the test, the opening words of section 416(2) would be enough. The purpose of the extended definition appears to be to make it unnecessary for the revenue to have to make detailed factual inquiries." " (IRC v. Newfields Developments Limited [2001] UKHL 27, Lord Hoffmann)
- Direct or indirect control over C's affairs
"(1) This section applies for the purpose of this Part.
(2) A person (“P”) is treated as having control of a company (“C”) if P—
(a) exercises,
(b) is able to exercise, or
(c) is entitled to acquire,
direct or indirect control over C's affairs." (CTA 2010, s.450)
- Test of actual control
"[34]...As Lord Hoffmann said in R v IRC ex p Newfields Developments Ltd [2001] 1 WLR 1111, paragraph 10, the "fairly simple notion" of control in section 416(2) "is enormously widened by subsequent subsections". To the same effect, Lord Scott of Foscote (who gave the only other reasoned speech) said at [2001] 1 WLR 1111, paragraph 41, that the opening words of section 416(2) (including the reference to "indirect control") "prescribe a test of actual control" and that section 416 goes on "in the remaining part of subsection (2) and in subsections (4), (5) and (6) to describe circumstances in which, whether or not a person has actual control, the person 'shall be taken to have control'." It seems to me that those observations confirm the approach taken by the Chancellor, and which I would adopt, namely to give the opening part of section 416(2) its ordinary meaning, and certainly not to give it an artificially narrow meaning because of the following subsections. This approach to section 416 confirms my view that the reference to "indirect control", and any other expression in subsection (2), should be given its natural meaning in the context of that subsection, and should not be given a narrow meaning because of subsections (4) to (6)." (Kellogg Brown& Root Holdings (UK) Ltd v. HMRC [2010] EWCA Civ 118)
S.1124/S.995: ACTUAL CONTROL THROUGH CONSTITUTION
- Power to secure (by specified means) affairs of company are conducted in accordance with person's wishes
"(1) This section has effect for the purposes of the provisions of the Corporation Tax Acts which apply this section (or to which this section is applied).
(2) In relation to a body corporate (“company A”), “control” means the power of a person (“P”) to secure—
(a) by means of the holding of shares or the possession of voting power in relation to that or any other body corporate, or
(b) as a result of any powers conferred by the articles of association or other document regulating that or any other body corporate,
that the affairs of company A are conducted in accordance with P's wishes." (CTA 2010, s.1124)
- Other document regulating that or any other body corporate (documents analogous to articles of association)
"AV Ltd owns 40% of the shares of BK Ltd, but it has the power, through BK Ltd’s Articles, to appoint more than half of BK Ltd’s board of directors. These directors will manage the business according to AV Ltd’s wishes, so AV Ltd has control." (CFM35120)
- In accordance with P's wishes means P's personal wishes
"Secondly, the definition does not state that control is the power of a person to secure that the affairs of the company are conducted according to his votes. The use of the word "wishes" suggests that the Statute requires that he shall be able to achieve his personal aims. Now, one trustee is not entitled to conduct the affairs of the trust disregarding the wishes of the other trustees (Wyse v Abbott, 8 R. 983; Darling v Darling, 25 R. 747, at pages 750 and 752). If a trustee is determined to act at a company meeting in defiance of the wishes of his co-trustees, he may be interdicted from so doing (Wolfe v Richardson, 1927 S.C. 305; 1927 S.L.T. 220 and 490). Accordingly, even if a trustee succeeds in having a particular resolution carried at a company meeting against the wishes of his co-trustees, he can be prevented, by the intervention of the Court, from securing, by continued defiance of his co-trustees, that the company's affairs are conducted in accordance with his own' wishes. Therefore his holding of the shares as first-named trustee, even if this holding gives him the voting power of the trust according to the articles of association, is insufficient to enable him to secure the control required to satisfy the definition; which must be, firstly, continuing control of the affairs of the company and, secondly, control securing that the affairs are conducted in accordance with his wishes." (CIR v. Lithgows Ltd (1960) 39 TC 270 at 278 (Court of Session) - query whether the point was that P was a trustee or that P could not overrule the other trustees)
- Loan facility letter not akin to articles of association
"[22] I have no hesitation in deciding that at no time was Fenlo under the control of Brinkley for the purposes of s 87A. The provisions of cl 13 of the facility letter are restricted in their scope and negative in their nature. They are typical of those found in agreements governing highly geared secured loans, such as this. Their purpose is to protect the financial interests of the lender: to ensure that the lender's security package is protected, that value is not leached out of the borrower and that the lender is provided with reliable financial information so that it can monitor the loan.
[23]I do not consider that the facility letter has the flavour of, or is akin to, articles of association of a company..." (Fenlo v. HMRC [2008] STC (SCD) 1245, Judge Aleksander)
But see:
"So, to determine whether relevant arrangements exist, you will need to consider:
- the Memorandum and Articles of Association of the company (and any other document regulating the company or which could result in the affairs of the company being conducted in accordance with a particular persons wishes), and
- the various documents relating to loans made to the company.
Where a company other than the parent company holds shares, etc, you may also need to consider the shareholdings, etc, of that company." (CTM80175)
- Query whether it is permissible to aggregate power by holding shares with power conferred by the articles to achieve control
"Turning to the question of the position at a general meeting of the company, the matter could hardly be clearer. There are two votes (subject to the casting vote in certain matters not of ordinary occurrence in relation to Reserved Resolutions), one 'A' and one 'B'. I need not enter into the extremely interesting question as to whether the 'B' shareholders could frustrate the holding of a meeting in any event by all staying away (given that at the moment all the 'A' shares are held by one nominee) because even if they turn up the position is that on the vast majority of resolutions there are just two votes, one 'A' and one 'B', and it is admitted that the shareholders of Holdings do not in any way control the 'B' vote. There is therefore deadlock in the sense that the holders of the 'A' shares cannot dictate the policy of the company against the holders of the 'B' shares. There is no control at company meeting level; and I think that counsel for Holdings really accepted this position." (Irving v. Tesco Stores (Holdings) Ltd [1982] STC 881 at 910, Walton J)
- Real control by a person so that the company is really his creature
"[20] I was referred by the Revenue to IRC v Lithgows Ltd (1960) 39 TC 270, 1960 SC 405...
[21] Lord President Clyde (see (1960) 39 TC 270 at 274, 1960 SC 405 at 415) puts the matter succinctly:
'… In my opinion, what the Subsection is referring to is real control by one person, so that the company is really his creature …' (Fenlo v. HMRC [2008] STC (SCD) 1245, Judge Aleksander)
- Control used to identify real association not accidental association arising from coincidence
"On the whole matter, in my opinion, what Parliament was dealing with in Section 469 was a real association between two companies, not just the accidental association arising from what must often be a coincidence - namely, that the same individual is the first-named trustee in the register of two companies in respect of a majority holding of shares by two trusts which may have no connection with one another at all." (CIR v. Lithgows Ltd (1960) 39 TC 270 at 278 (Court of Session))
- Have regard to the reality of the situation rather than bare voting rights (duty, enforceable by the Court)
"If a first-named trustee has the duty, enforceable by the Court, of exercising, on behalf of all, the right of voting, then he does not possess the power to have the affairs of the company conducted in accordance with his wishes, as the definition requires. I do not agree with the contention of the Crown that as long as Sir Andrew Macharg appears as first-named trustee on the register he must be regarded as having control within the meaning of the definition since, according to the articles, he has the voting power. I think that the terms of the definition, and in particular the reference to the wishes of that person, show that regard must be had to the realities of the situation and not merely to the entry in the register." (CIR v. Lithgows Ltd (1960) 39 TC 270 at 278 (Court of Session) - query whether the point was that P was a trustee or that P could not overrule the other trustees)
AFFAIRS OF THE COMPANY
- Shareholders' agreement preventing majority shareholders having control
"[115] It is our view that the provisions of clause 11 of the shareholders agreement, which contains a raft of restrictions on the otherwise unfettered right of the majority shareholders to control the company, mean that they do not control the company. The clause 11 actions require the consent of SF. These include changing the constitution the company or its name, issuing debt instruments, forming subsidiaries, merging or winding up the business, changing the nature of the business carried on by the company, making loans, permitting transactions with associated companies or shareholders, and other similar provisions.
[116] These matters are fundamental to the running of the company at both an operational and strategic level. They are clearly within the ambit of the affairs of the company. Since the majority shareholders do not have the power to secure that these are conducted in accordance with their wishes, it is our view that they do not have control of the company.
[117] Irrespective, therefore, of control of VDP, the company and VDP were not connected at the relevant time." (Keighley v. HMRC [2024] UKFTT 30 (TC), Judge Popplewell)
Control over what (s.450)
- s.450 is concerned with control at the level of general meeting
"Counsel for EVC relies on this dictum [in Tesco Stores - see below] for the proposition that the 'affairs of the company' in s 416(2) means the 'business of the company' as carried on by the directors so that the control which is required is control over the board in the exercise of their management powers. I do not accept this proposition. First, the obiter dictum of Walton J, for it was no part of the ratio of his decision, was made in relation to the definition of control, with which he was concerned, then contained in s 534 of the Income and Corporation Taxes Act 1970 and now to be found in s 840 of the Income and Corporation Taxes Act 1988. This definition is in a materially different form by virtue of the inclusion of para (b). Second it ignores the context and wording of s 416. As Lightman J pointed out s 416 is part of a collection of sections dealing with close companies, a subject which focuses on shareholdings and ownership and itself concentrates on shareholdings, particularly in sub-s (2)(a). Third I see no reason why 'control of the company's affairs' as described in s 416(2) should be any different to 'control of the company' or 'having a controlling interest in the company' in the sense of those phrases as considered in all the other cases on which counsel for EVC relied and to which I have already referred.
For all these reasons I do not accept the criticisms of the judgment of Lightman J in respect of proposition 1. In my view control of the affairs of the company in s 416 means control at the level of general meetings of the company in the sense explained in the cases to which I have referred. Those cases recognise that control at that level carries with it the power to make the ultimate decisions as to the business of the company and in that sense to control its affairs." (Steele v. EVC International NV [1996] STC 785 at 794, Morritt LJ)
- Affairs of the company does not mean direct control of the business of the company
"[15]...Shareholders in a UK company (and in the absence of evidence I have to assume that it is the same for a Delaware company) can never excise control over the company's affairs in the sense of the business of the company; the most they can do is to remove the directors. The affairs of the company cannot therefore refer to the business of the company, as Morritt LJ said in Steele (Inspector of Taxes) v EVC International NV [1996] STC 785 at 794, and must mean control at general meetings of the company..." (Kellogg Brown & Root Holdings (UK) Ltd v. HMRC [2008] STC (SCD) 928, Judge Avery Jones)
- Ultimate power to remove and add directors (parent has control of sub-subsidiary)
"[32] Mr Foxwell submitted that as at 6 May 2015 the appellant, through its indirect controlling interest in HFL, was able to control Greenrose. HFL was the sole member of Greenrose and control of Greenrose lay with its members. HFL had the power to appoint and remove directors.
[33] I accept Mr Foxwell’s submission. Regulation 5 of Greenrose’s articles of association provide that the members, namely HFL, could appoint any person to be an additional director. Hence HFL could appoint a majority of new directors if it was so minded. There is also power in section 168 Companies Act 2006 whereby HFL could remove Mrs Frew and Mr Jones as directors. As such, in my view it is clear that the appellant was able to exercise indirect control over the affairs of Greenrose within section 450(2) CTA 2010." (Hunters Property Plc v. HMRC [2018] UKFTT 96 (TC), Judge Cannan)
Control over what (s.1124/s.995)
- Not necessary to be able to pass a special resolution
"The owners of the majority of the voting power in a company are the persons who are in effective control of its affairs and fortunes. It is true that for some purposes a 75 per cent. majority vote may be required, as, for instance (under some company regulations), for the removal of directors who oppose the wishes of the majority, but the bare majority can always refuse to re-elect and so in the long run get rid of a recalcitrant board. Nor can the articles of association be altered in order to defeat the wishes of the majority, for a bare majority can always prevent the passing of the necessary resolution." (British American Tobacco Company v. IRC [1943] AC 335 at 340 (HoL))
- Necessary element of control is ability to determine composition of board if shareholders cannot dictate to directors
"The ability to secure that the affairs of the company are conducted in accordance with a persons wishes includes consideration of how the business of the company as managed by its Board. Usually shareholders cannot dictate to or overrule the Board on management matters entrusted to the Board. So a necessary element of control is the ability to determine the composition of the Board, or failing that, to appoint directors who have the power to impose their decisions on directors appointed by any other shareholder." (CTM80175)
- s.1124/s.995 concerned with control of day to day of business (through control of board) rather than, e.g. dividends
"The word used there is 'business': the word used in s 534 is 'affairs'. Is there any difference?
On the whole, I think not. The submissions of counsel for the Crown on this point were to the effect that control of a company's affairs within the meaning of s 534 could be had only if that control was at company meeting level. I think that this submission basically is in contradistinction to the shape of the section as a whole.
The reason for that is that the voting control position is already taken care of by para (a). It would seem tautological to reach the conclusion that under para (b) one could not reach a position of control without going back to (a), in effect.
Moreover, the framers of this section must have realised that 'powers conferred by the articles of association' can obviously be varied, or withdrawn, or conferred on others, by the obvious device of an alteration of such articles by the necessary statutory majority; so that (although not so expressed) there are really two types of control considered in that section. There is what may be called basic, permanent, control—that conferred by voting power—and control which may only be transient, impermanent, conferred by the articles of association. (I accept, of course, that in many cases, by reason of the actual disposition of the voting power, it may be unlikely or improbable that the articles will ever be altered). But since there are two such different types included, it does not seem to me that I can derive very much assistance from cases relating to other statutory provisions dealing with control, since the more natural interpretation of 'control' is that of a permanent, rather than that of a possibly transitory, nature.
I fully appreciate the submission of counsel for the Crown that, in its widest sense, the 'affairs' of the company embrace many things which the company can do only in general meeting; for example, declaring a dividend—and I do not consider that it is any answer thereto to say that, as a practical matter, the directors can simply declare interim dividends and never recommend the declaration of a final dividend. This is to distort the rules under which the game is played, and professional fouls, however much they may escape the censure they deserve, are still fouls. But whilst I fully accept this submission, the question is, in my judgment, what is meant by 'affairs' in the context of s 534, and I think that it requires a somewhat narrower construction for the reason already given.
...
Accordingly, if it is necessary to decide this point I would agree with counsel for Holdings that control at board level is sufficient where the articles contain provisions equivalent to those contained in art 80. However, as I have already indicated, this is not sufficient for his purpose, since the arrangement was that there should be five 'C' directors not under the control in any shape or form of the shareholders in Holdings, and the articles do not provide that in all circumstances the wishes of the 'A' directors will prevail over those of the 'C' directors, if contrary. Indeed, it is obvious that so to provide would in substance have negatived any suggestion that Shell controlled the composition of the board of Rebron, which was an essential part of the whole arrangement so far as Shell were concerned." (Irving v. Tesco Stores (Holdings) Ltd [1982] STC 881 at 911...912, Walton J)
- General meeting votes will normally include right to vote on appointment + removal of directors
"The voting rights shareholders can exercise in general meetings will normally include the right to vote on the appointment and removal of directors." (CTM80175)
- Majority shareholder will usually have control unless different classes carry different voting rights
"Control through shares
A majority shareholding will usually ensure control, unless different classes of shares carry different voting rights. Share held on trading account and their voting rights are ignored for this purpose.
Control through voting rights: example
MK Ltd’s issued share capital is made up of
- 1,000 ordinary shares, carrying one vote each
- 2,000 ‘A’ ordinary shares with no voting rights.
KB Ltd owns 800 ordinary shares.
JR Ltd owns 200 ordinary shares and 2,000 ‘A’ ordinary shares.
Although JR Ltd has the majority of the issued shares, KB Ltd has control because it has the majority of the shares with voting rights, and can therefore use those voting rights to ensure that MK Ltd acts according to its wishes." (CFM35120)
- Majority control of share voting rights may not give control of board under constitution
"However, it is not safe to assume that possession of the majority of voting rights will bring automatic control of the Board. In Irving v Tesco Stores (Holdings) Ltd 58TC1, the claimant did not have Boardroom control of the surrendering company because:
more than half of the directors were to be appointed by the minority shareholder and could not be removed without his consent, and
the directors appointed by the claimant could not impose their decision on the directors appointed by the minority shareholder." (CTM80175)
- Ability to achieve isolated result insufficient
""In my opinion, it is not sufficient, to satisfy the requirements of the definition, that a person is in a position to carry a particular resolution at a meeting of the company. In order that a person may have "control" he must be in a position to secure that the affairs of the company are conducted according to his wishes. That phrase means that ability to achieve an isolated result, the power to carry a particular resolution, is insufficient to establish control in the statutory sense; and that what is required is power to secure the continuing conduct of the company's affairs in accordance with the will of the person." (CIR v. Lithgows Ltd (1960) 39 TC 270 at 278 (Court of Session))
- Inability to control single affair not sufficient to deny control
"[111] On the first point, we do not agree with him that, as a general principle, if a single affair of the company is not conducted in accordance with the person's wishes, that person has no control. It would seem odd to us that if there was a provision in a shareholders agreement which obliged the majority shareholders to take into account the wishes of a minority shareholder if the company wants to buy more than 50 paperclips in one batch, then that would prevent those majority shareholders from controlling the company. To our mind when considering the affairs of the company, one needs to look more deeply into the affairs of the company.
[112] There must be a consideration in each particular case, which is bound to be fact dependent, as to whether the specific activities of the company in question are conducted in accordance with a person's wishes. And, without making any hard and fast rule (which we do not need to do in this case) the relevant affairs and activities of the company which need to be considered will vary on a case-by-case basis." (Keighley v. HMRC [2024] UKFTT 30 (TC), Judge Popplewell)
- Equality of votes at general meeting may lead to deadlock
"Turning to the question of the position at a general meeting of the company, the matter could hardly be clearer. There are two votes (subject to the casting vote in certain matters not of ordinary occurrence in relation to Reserved Resolutions), one 'A' and one 'B'. I need not enter into the extremely interesting question as to whether the 'B' shareholders could frustrate the holding of a meeting in any event by all staying away (given that at the moment all the 'A' shares are held by one nominee) because even if they turn up the position is that on the vast majority of resolutions there are just two votes, one 'A' and one 'B', and it is admitted that the shareholders of Holdings do not in any way control the 'B' vote. There is therefore deadlock in the sense that the holders of the 'A' shares cannot dictate the policy of the company against the holders of the 'B' shares. There is no control at company meeting level; and I think that counsel for Holdings really accepted this position." (Irving v. Tesco Stores (Holdings) Ltd [1982] STC 881 at 910, Walton J)
- Power of A's directors to vote through a resolution not giving control where B's directors could immediately vote through a counter-resolution (revolving door)
"What, then, is the effect on this situation of art 11(e)? Although at first blush it would appear to give the 'A' directors complete control (because unless a 'C' director opposed a resolution the worst that could happen, so far as the 'A' directors are concerned, is that there should be an equality of votes with the 'B' directors, and the chairman, who would be an 'A' director, would have a casting vote under art 12), this on closer analysis turns out not to be the case. Article 11(e) has no application to a resolution proposed by a 'C' director to which both the 'A' directors are opposed; and as a good many decisions of the board of directors are rescindable—they can change their minds as often as they like—in a good many cases one could theoretically have the untidy situation of the two 'A' directors supporting a resolution which is opposed by all the 'C' directors, but which is then carried by virtue of art 11(e), followed by a resolution proposed by the 'C' directors in the contrary sense, which is opposed by the two 'A' directors, but to which art 11(e) does not apply, with the result that that in its turn is carried. One has here a revolving door of considerable potential duration." (Irving v. Tesco Stores (Holdings) Ltd [1982] STC 881 at 908, Walton J)
- Long term view: directors and managers given executive power but ultimately subject to the will of shareholders
"The argument was that, in terms of the articles of association of both companies, the affairs of the companies were conducted by directors and managers who had power to enter into contracts, including contracts of purchase and sale. In each case it was provided that no regulation made by the company in general meeting should invalidate any prior act of the directors which would have been valid if such regulation or direction had not been made. The argument was that, in terms of these articles, the control of the company's affairs was in the directors and managers and accordingly could not be in Sir Andrew Macharg. This argument is, in my opinion, quite unsound. Although directors and managers are given executive powers by the articles of association, their actions are ultimately subject to the will of the shareholders of the company as expressed in general meeting. It is true that the articles provide that a prior act of the directors or managers is not invalidated by subsequent direction of the company, but, as I have pointed out, the definition in Section 333 (1) looks not to any particular incident but to the continuing control of the company's affairs, and, on a long term view, there can be no doubt that the control of the company rests in the shareholders." (CIR v. Lithgows Ltd (1960) 39 TC 270 at 278 (Court of Session))
- Loan creditor rights over limited matters insufficient
"[23] Even if it was, the covenants in cl 13 are not sufficient to give Brinkley control over Fenlo. The cases indicate that control should be read as the ability to order the affairs of a company according to the 'controller's' wishes on a continuing basis. Fenlo contend that as Brinkley's wishes were restricted to the matters set out in cl 13 of the facility letter, the company was managed in accordance with those wishes. No evidence was submitted as to Brinkley's wishes or desires, and I cannot therefore accept that this is the case. Even if at the date of the facility letter, Brinkley's wishes were minimal and were reflected in cl 13, Brinkley would not have the ability to secure changes to Fenlo's business in the event that its wishes changed (for example in the light of changes to the circumstances of Fenlo's business). Finally, accepting Fenlo's argument would lead to the absurd result that banks and other lenders would be treated as controlling their borrowers in very many cases, as the covenants in cl 13 of the facility letter are typical of those found in many secured commercial loan agreements." (Fenlo v. HMRC [2008] STC (SCD) 1245, Judge Aleksander)
- Absence of control over issuing debt, merging, winding up, changing nature of business etc. meaning no control over affairs of company
"[115] It is our view that the provisions of clause 11 of the shareholders agreement, which contains a raft of restrictions on the otherwise unfettered right of the majority shareholders to control the company, mean that they do not control the company. The clause 11 actions require the consent of SF. These include changing the constitution the company or its name, issuing debt instruments, forming subsidiaries, merging or winding up the business, changing the nature of the business carried on by the company, making loans, permitting transactions with associated companies or shareholders, and other similar provisions.
[116] These matters are fundamental to the running of the company at both an operational and strategic level. They are clearly within the ambit of the affairs of the company. Since the majority shareholders do not have the power to secure that these are conducted in accordance with their wishes, it is our view that they do not have control of the company.
[117] Irrespective, therefore, of control of VDP, the company and VDP were not connected at the relevant time." (Keighley v. HMRC [2024] UKFTT 30 (TC), Judge Popplewell)
DE FACTO CONTROL
- Query whether de facto control is sufficient for s.450
"[138] The FTT did not, however, do that. They carefully examined the facts to see whether the case was one in which DB had relevant control and concluded, in summary, that whilst the evidence showed close co-ordination, it did not 'in the section 416 sense, show control'. In my view, Mr Goy was right that in the phrase 'the necessary degree of compulsion' the FTT was doing no more than attempting, perhaps not with an ideal choice of phrase, to identify the elusive extra ingredient that needs to be found before A Ltd can be said to be in control of voting powers of a majority shareholder of B Ltd. Ultimately, whether there is such control is a fact-sensitive matter; and here the FTT found against HMRC's control case on the facts.
[139]...Moreover, and with respect, I regard the UT's conclusion that the only answer to the control question was that DB was relevantly in control of Investec a remarkable one, which I regard as obviously wrong. Yes, the scheme was pre-ordained and involved a co-ordinated course of action between the participants, with Investec and DB, two wholly independent companies, playing pre-ordained and co-ordinated roles, with each having its own commercial interests in bringing the scheme to fruition. It does not, however, begin to follow from this that DB was in relevant control of Investec. If A Ltd proposes to B Ltd, an unconnected and independent company, a co-ordinated course of action with a view to achieving a commercial end to the benefit of both, and B Ltd agrees to the proposal and co-operates in its implementation, it is beyond my comprehension why such a state of affairs should be thought to justify the inference that, in playing its own part in the operation, B Ltd is to be regarded as being 'controlled' in what it does by A Ltd. The proposition is wrong. B Ltd will, by inference, want to take part, and will do so. But there will ordinarily be no basis for an inference that the decisions it makes en route to the ultimate goal will be decisions it makes other than independently, and in its own interests, in achieving the proposed end." (UBS AG v. HMRC [2014] EWCA Civ 452, Rimer LJ)
- s.1124/995 control must be secured through holding shares/powers
"(1) This section has effect for the purposes of the provisions of the Corporation Tax Acts which apply this section (or to which this section is applied).
(2) In relation to a body corporate (“company A”), “control” means the power of a person (“P”) to secure—
(a) by means of the holding of shares or the possession of voting power in relation to that or any other body corporate, or
(b) as a result of any powers conferred by the articles of association or other document regulating that or any other body corporate,
that the affairs of company A are conducted in accordance with P's wishes." (CTA 2010, s.1124)
USURPING ACTUAL CONTROL
- Family member in practice exercises rights that are vested in another
"[154] I can see that there are certain circumstances where the reality is that a person exercises, or is able to exercise, control over a company even if legal power to do so is not vested in that person. An example of that might be a family situation where in practice one family member exercises rights that are vested in another (indeed there appears to be a practical example of this in Mr Parker’s effective control of PG London). However, I think it much more unlikely that that sort of situation would arise in dealings between third parties, and in the absence of any direct evidence from Mr Barnes on the point, or any evidence from Dr Smart, I do not think that the facts justify the conclusion that Mr Barnes was in fact exercising or able to exercise control at a shareholder level before he acquired shares in SMCL." (PGPG Limited v. HMRC [2017] UKFTT 782 (TC), Judge Falk)
- Unlikely in dealings between third parties
"[154] I can see that there are certain circumstances where the reality is that a person exercises, or is able to exercise, control over a company even if legal power to do so is not vested in that person. An example of that might be a family situation where in practice one family member exercises rights that are vested in another (indeed there appears to be a practical example of this in Mr Parker’s effective control of PG London). However, I think it much more unlikely that that sort of situation would arise in dealings between third parties, and in the absence of any direct evidence from Mr Barnes on the point, or any evidence from Dr Smart, I do not think that the facts justify the conclusion that Mr Barnes was in fact exercising or able to exercise control at a shareholder level before he acquired shares in SMCL." (PGPG Limited v. HMRC [2017] UKFTT 782 (TC), Judge Falk)
INDIRECT CONTROL
- Person/persons together who control Holdco, indirectly control subsidiaries
"[33] In my opinion, that latter reason was correct. As a matter of ordinary language, the shareholders of company A "indirect[ly] control" company B, at least in the absence of special circumstances (e.g. an unusual voting structure) if all (indeed if a majority) of the shares of company B are owned by company A. Indeed, the concept of "control" in section 416 has been held to mean "control at the level of general meetings of the company" – Steele v. EVC International NV [1996] STC 785, 794j per Morritt LJ. As to "indirect" control, it is hard to see why, in the example I have just given, the shareholders of company A do not indirectly control company B. The view that the reference to indirect control in section 416(2) should be construed widely, or at least should not be construed narrowly, is supported by the words "without prejudice to the generality of the foregoing" in the same subsection." (Kellogg Brown& Root Holdings (UK) Ltd v. HMRC [2010] EWCA Civ 118)
- Controlling interest may exist through ownership of shares in another company (which in turn owns shares in the relevant company)
"The case turns on the meaning of the words "controlling interest" in the context in which they are used. The appellants argue that, in order that one company should have "a controlling interest" in another, it must be the beneficial owner of a requisite number of shares in that other company, either registered in its own name or in the name of its nominees, and that, if company No. 1 owns all the shares in company No. 2 which in turn owns all the shares in company No. 3, company No. 1 has no interest, controlling or otherwise, in company No. 3. It is true that in such circumstances company No. 1 owns none of the assets of company No. 2, and a fortiori owns none of the assets of company No. 3, and in that sense neither owns, nor has an interest in, company No. 3, but that is to treat the phrase "controlling interest" as capable of connoting only a proprietary right, that is, an interest in the nature of ownership. The word "interest," however, as pointed out by Lawrence J., is a word of wide connotation, and I think the conception of "controlling interest" may well cover the relationship of one company towards another, the requisite majority of whose shares are, as regards their voting power, subject, whether directly or indirectly, to the will and ordering of the first mentioned company. If, for example, the appellants own one-third of the shares in company X, and the remaining two-thirds are owned by company Y, the appellants will none the less have a controlling interest in company X if they own enough shares in company Y to control the latter. In my opinion, this is the meaning of the word "interest" in the enactment under consideration, and, where one company stands in such a relationship to another, the former can properly be said to have a controlling interest in the latter. This view appears to me to agree with the object of the enactment as it appears on the face of the Act. I find it impossible to adopt the view that a person who (by having the requisite voting power in a company subject to his will and ordering) can make the ultimate decision as to where and how the business of the company shall be carried on, and who thus has in fact control of the company's affairs, is a person of whom it can be said that he has not in this connexion a controlling interest in the company." (British American Tobacco Company v. IRC [1943] AC 335 at 339 (HoL))
- s.1124/s.995 looks at powers in relation to "that or any other body corporate"
"(1) This section has effect for the purposes of the provisions of the Corporation Tax Acts which apply this section (or to which this section is applied).
(2) In relation to a body corporate (“company A”), “control” means the power of a person (“P”) to secure—
(a) by means of the holding of shares or the possession of voting power in relation to that or any other body corporate, or
(b) as a result of any powers conferred by the articles of association or other document regulating that or any other body corporate,
that the affairs of company A are conducted in accordance with P's wishes." (CTA 2010, s.1124)
- Query whether there is a limit to the number of companies in a chain (where each controls the next) between control of the bottom from the top
"One final point was made which may be put in the form: how far does this investigation of the controlling interest in bodies corporate go? My brother Morris put the case in the argument: supposing the majority shares in the Danish company were themselves held by a Norwegian company, and of that company the majority shares were vested in a Swedish company, and so on, until eventually you found one of the directors at the end of an extremely long and complicated chain; it may be that in such a case, to use the picturesque phrase of Mr. Wilberforce, you would have to say that the man at the far end who pulls the lever would pull it in vain, because the mechanism was so complicated that no discernible effect would be seen at the other end of the machine. That is, however, in my judgment, a question of fact which does not arise in the present case. Here Ludwig Elsass, as the Special Commissioners quite clearly intended to find, controlled the Danish company, in the sense that his was the voice with which the Danish company spoke in its capacity as registered shareholder of S. Berendsen Ltd., and, in those circumstances and for the reasons which I have stated, I think that in this case the appeal should be allowed." (S Berendsen Ltd v. IRC [1958] Ch 1 at 39 (CoA))
FUTURE CONTROL
- s.1124/995 control in present tense
Use of present tense indicates that options to acquire rights and rights only exercisable in future are not sufficient
"(1) This section has effect for the purposes of the provisions of the Corporation Tax Acts which apply this section (or to which this section is applied).
(2) In relation to a body corporate (“company A”), “control” means the power of a person (“P”) to secure—
(a) by means of the holding of shares or the possession of voting power in relation to that or any other body corporate, or
(b) as a result of any powers conferred by the articles of association or other document regulating that or any other body corporate,
that the affairs of company A are conducted in accordance with P's wishes." (CTA 2010, s.1124)
TWO OR MORE PERSONS TOGETHER
Section 450 control
- Two or more persons together satisfying tests treated as having control
"(5) If two or more persons together satisfy any of the conditions in subsections (2) and (3), they are treated as having control of C." (CTA 2010, s.450(5))
See also
"(5) A company is connected with another company-
...
(b) if a group of 2 or more persons has control of each company, and the groups either consist of the same persons or could be regarded as consisting of the same persons by treating (in one or more cases) a member of either group as replaced by a person with whom he is connected." (TCGA s.286)
- The two or more persons together must satisfy the same condition for control
"[30] HHL contends that the word "together" has no purpose if section 416(3) applies where "the two or more persons" act independently. That may well be right, but the mere fact that a word is unnecessary under a particular interpretation is a very weak reason for rejecting that interpretation, if, as here, the word could be seen as performing an emphatic function. In any event, it could be said that, without the word, it would be unclear whether the subsection applied where one individual satisfied one of the three conditions in subsection (2), and another individual satisfied another of those conditions." (Kellogg Brown& Root Holdings (UK) Ltd v. HMRC [2010] EWCA Civ 118)
- No need for an arrangement or agreement to exercise control together
"[29] On behalf of HHL, Mr Gardiner attacks this conclusion on two grounds. First, he says that the reference in section 416(3) to "two or more persons together" means that there has to be some sort of agreement or other arrangement between those persons before it can be said that they fall within its ambit. I do not accept that argument. First, such a construction does not accord with the natural meaning of section 416(3). Secondly, such a construction would conflict the purpose of Part XI of the 1988 Act, as it would be only too easy for two or more individuals to avoid its provisions by establishing that, however close their personal relationship, they exercised any shareholder rights independently. Thirdly, for the same reason, the question whether a company was close could lead to a long enquiry whose outcome would be unpredictable. Fourthly, as Mr Baldry, for HMRC, argues, HHL's more limited meaning is difficult to reconcile with the fact that "control" in section 416(2) is defined as extending to a person "able to exercise" control. Fifthly, there is no difficulty giving section 416(3) this meaning, given that the limit to the number of persons who can control a close company is five." (Kellogg Brown& Root Holdings (UK) Ltd v. HMRC [2010] EWCA Civ 118)
The reference to a "group" of persons for CGT purposes does not affect this
"[42] Mr Gardiner suggests that to be a group for the purpose of section 286(5)(b) a collection of people must have "a commonality which allows it to act as a group on the grounds of some common relation or purpose". He also says that, the shareholders in Halliburton and in HIG were, in neither case, a "group" for this purpose, as there was no suggestion that they were acting in concert or collaboratively: they had different views about the company, different investment aspirations, different financial objectives, and, save to a small extent or in unusual circumstances, would not know of each other as shareholders, or be in any way in communication with each other about the company.
...
[46] With some regret, and in agreement with the Special Commissioner and the Chancellor, I have come to the conclusion that HHL's case on this point should be rejected. The natural meaning of the word "group" in the context of section 286(5)(b), whether read on its own or read together with section 416, is as the tribunals below decided. Conceptual difficulties and impracticalities would arise if one were to give the word the rather imprecise meaning for which Mr Gardiner argues. The explanation for the possible problems which may arise on the natural construction is the arguably inappropriate application of a definition created in one statute for a limited purpose to a provision in a different statute which has a much wider ambit, and there is a limit as to how far the courts can go in correcting that sort of oversight." (Kellogg Brown& Root Holdings (UK) Ltd v. HMRC [2010] EWCA Civ 118)
- May lead to common control in difficult to identify circumstances
"[38] I have considerable sympathy with Mr Gardiner's contention on this point. It does seem unlikely that the legislature could have intended two independent companies, both of which are quoted and all (or the great majority) of whose shares can be traded on the London (or any other) Stock Exchange, to be at risk of falling within the ambit of section 286(5)(b). It would mean that there would be difficulties in identifying whether two such companies were connected: there would often be thousands, even tens of thousands, of shareholders, many of whom could change from day to day, and many of whom may hold their shares on trust for others. If a company wished to check before it enters into a transaction, or indeed if HMRC wished to investigate after a transaction, there would seem to be no power to compel disclosure from a shareholder unless the shareholding was more than 5 per cent. Even if most quoted companies are not connected if this wide definition is adopted, it would be difficult to tell when two companies, such as Halliburton and HIG, which have been connected, actually cease to be connected. Quite apart from this, if such quoted companies were connected, the capital gains tax consequences would be rather capricious, and hard to justify." (Kellogg Brown& Root Holdings (UK) Ltd v. HMRC [2010] EWCA Civ 118)
- Contrast with the test that treats two persons "acting together" to control a company as connected
"(4) In relation to a company, any two or more persons acting together to secure or exercise control of the company are connected with—
(a) one another, and
(b) any person acting on the directions of any of them to secure or exercise control of the company." (CTA 2010 s.1122)
"EVC submits and the Revenue do not dispute that the mere coincidence of voting the same way at general meetings is insufficient. Likewise, combining together to carry a particular resolution would not normally be sufficient to constitute acting together to exercise control either at all or on any continuing basis (cf IRC v Lithgows Ltd 1960 SC 405, 39 TC 270)." (Steele v. EVC International NV [1996] STC 785 at 795, Morritt LJ)
See further H5. Connecting persons.
- For HMRC to prove that two apparently independent companies are under common control
"[47] The problems which Mr Gardiner identifies may or may not exist in practice, and, even if they do, they may not have existed in the 1960s, when, we were told, these provisions were first introduced, and when the shareholdings in large publicly quoted companies may have been very differently held from how they are now. In any event, no such problems seem to have arisen until this case, and the facts of this case are very unusual. If HMRC seek to raise the point in relation to two companies which are, and long have been, independent, then it will be very much up to them to prove that section 286(5)(b) is satisfied. The fact that section 50(6) of the Taxes Management Act 1970 places an initial general onus on the taxpayer challenging an assessment does not affect the point that, if HMRC's assessment relies on the fact that two apparently independent companies are "connected" under the terms of section 286(5)(b), then that would be for HMRC to prove." (Kellogg Brown& Root Holdings (UK) Ltd v. HMRC [2010] EWCA Civ 118)
Joint control (s.1124/995)
- Persons together can control a company
"[113] Nor do we agree with him that the statutory test can be supplemented by a rule of thumb that the persons need to act "as one". We need to consider the statutory test. We ask ourselves whether the rights attaching to the shares, the articles, or the shareholders agreement (which in our view falls within the ambit of another document regulating the company) give BM and the first appellant the power to secure that the affairs of the company are conducted in accordance with their wishes.
[114] We also accept the argument that person for these purposes can be persons by dint of the Interpretation Act." (Keighley v. HMRC [2024] UKFTT 30 (TC), Judge Popplewell)
"Following section 6(c) of the Interpretation Act 1978 we accept that the word ‘person’ can include ‘persons’. But such persons will only meet the requirements of the legislation if together they can secure that the company’s affairs are controlled in accordance with their wishes. Whether this exists will be a question of fact in all cases. For example, there could be an oral or written agreement always to vote together, or the intention could be implied by the relationship between the parties." (CFM35120)
PARTNERSHIP AND ACTUAL CONTROL
s.1124 control
- Control of partnership giving control of company owned as partnership asset
"(3) In relation to a partnership, “control” means the right to a share of more than half the assets, or of more than half the income, of the partnership." (CTA 2010, s.1124)
Loan relationship rules
- Apportion in accordance with profit and loss entitlement
"In determining who controls a company owned by a partnership, CTA09/S474 attributes shares in the company to company partners according to their interest in the partnership. That interest is determined by the way profits or losses are apportioned under the provisions of CTA09/S1262." (CFM35120)
TRUSTEES AND ACTUAL CONTROL
Whether fiduciary duties mean trustee does not have control
- s.1124/995: Minority trustee does not have control as liable to be overruled, restrained or overturned (cannot "secure" how affairs conducted)
"It was argued for the Crown that it was enough that, at a meeting called to agree to the sale or purchase of the ships, Sir Andrew as first-named trustee could carry a resolution which he wished to carry although this was in defiance of the wishes of his co-trustees. But this argument is unsound. In the first place, if he did so he could not "secure" that the resolution stood, for it would obviously be reducible by his co-trustees (Wolfe v Richardson, 1927 S.L.T. 220 and 490). In the second place, under the articles of these companies (see especially article 102 of the Nile Steamship Co., Ltd.), the shareholders never would be called on to make the contract of sale, for this was done by the managers. But in the third place, Section 333(1) is not directed to the passing of particular resolutions but something much more general, namely the conduct of the affairs of the company. In my opinion, the mere fact that Sir Andrew is first-named on the register of a block of majority shares which he holds jointly with others will not give him the power to secure that the affairs of the company are conducted as he wishes. Indeed, if this simple fact of his name being first on the register is enough, then the statutory provision is of little benefit to the Crown, for all that would be necessary to avoid it is to alter the order of trustees in the register of one of the two companies, so that Sir Andrew's name does not appear first in both registers. In my opinion, what the Subsection is referring to is real control by one person, so that the company is really his creature. Such a situation does not apply to one of a body of trustee shareholders such as in the present case." (CIR v. Lithgows Ltd (1960) 39 TC 270 at 275 (Court of Session))
"Secondly, the definition does not state that control is the power of a person to secure that the affairs of the company are conducted according to his votes. The use of the word "wishes" suggests that the Statute requires that he shall be able to achieve his personal aims. Now, one trustee is not entitled to conduct the affairs of the trust disregarding the wishes of the other trustees (Wyse v Abbott, 8 R. 983; Darling v Darling, 25 R. 747, at pages 750 and 752). If a trustee is determined to act at a company meeting in defiance of the wishes of his co-trustees, he may be interdicted from so doing (Wolfe v Richardson, 1927 S.C. 305; 1927 S.L.T. 220 and 490). Accordingly, even if a trustee succeeds in having a particular resolution carried at a company meeting against the wishes of his co-trustees, he can be prevented, by the intervention of the Court, from securing, by continued defiance of his co-trustees, that the company's affairs are conducted in accordance with his own' wishes. Therefore his holding of the shares as first-named trustee, even if this holding gives him the voting power of the trust according to the articles of association, is insufficient to enable him to secure the control required to satisfy the definition; which must be, firstly, continuing control of the affairs of the company and, secondly, control securing that the affairs are conducted in accordance with his wishes." (CIR v. Lithgows Ltd (1960) 39 TC 270 at 278 (Court of Session) - query whether the point was that P was a trustee or that P could not overrule the other trustees)
- Duty of first-named shareholder as trustee, enforceable by the Court, meaning that shareholder does not have control
"If a first-named trustee has the duty, enforceable by the Court, of exercising, on behalf of all, the right of voting, then he does not possess the power to have the affairs of the company conducted in accordance with his wishes, as the definition requires. I do not agree with the contention of the Crown that as long as Sir Andrew Macharg appears as first-named trustee on the register he must be regarded as having control within the meaning of the definition since, according to the articles, he has the voting power. I think that the terms of the definition, and in particular the reference to the wishes of that person, show that regard must be had to the realities of the situation and not merely to the entry in the register." (CIR v. Lithgows Ltd (1960) 39 TC 270 at 278 (Court of Session))
- Or trustees (save perhaps bare trustees) do have a controlling interest in the company whose shares they own
"Finally, let me cite the observations made in Bibby's case 89 by my noble and learned friend on the Woolsack: "Those who by their votes can control the company do not the less control it because they may themselves be amenable to some external control." Despite the change in language in section 55, these words seem to me applicable to the present case, and for the reasons I have given I would dismiss the appeal." (Barclays Bank Ltd v. IRC [1961] AC 509 at 537, Lord Cohen)
“For the purpose of such a test the fact that a vote-carrying share is vested in a director as trustee seems immaterial. The power is there, and though it be exercised in breach of trust or even in breach of an injunction, the vote would be validly cast the company, and the resolution until rescinded would be binding on it. The contention that upon the wording of sect 13 the interest must be confined to beneficial interests appears to me to be but a repetition of the argument which was rejected by this House in the case of in relation to National Defence Contribution and the Finance Act, 1937.” (IRC v. J Bibby and Sons Ltd [1945] 1 All ER 667 Lord Russell)
“So far as the company is concerned the relation between such of its shareholders as happen to be trustees and their beneficiaries is . It may be that a trustee shareholder may, as between himself and his , be under a duty to exercise his vote in a particular manner, or a shareholder may be bound under contract to vote in a particular way . But with such restrictions the company has nothing to do. It must accept and act upon the shareholder's vote notwithstanding that it may be given contrary to some duty which he owes to outsiders. The remedy for such breach lies elsewhere.
Suppose that all the shares held by the directors in the present case were held by them as trustees, could it be said that they did not control the company? If so, then in whose hands was the control of the company?” (IRC v. J Bibby and Sons Ltd [1945] 1 All ER 667 Lord MacMillan)
“Those who by their votes can control the company do not the less control it because they may themselves be amenable to some external control. Theirs is the control, though in the exercise of it they may be guilty of some breach of obligation whether of conscience or of law.” (IRC v. J Bibby and Sons Ltd [1945] 1 All ER 667 Lord Simonds)
- And managing trustees do not have controlling interest where shares are held by custodian trustee
"In the present case, National Provincial Bank Ld. is the registered holder of all the "A" shares, and is not merely a nominee or bare trustee. It follows, therefore, in our view, from the Bibby case(26) that the controlling interest in the shares must, for the purposes of the present case, be treated as being in the bank, and that it is not permissible to investigate the character in which the bank exercises its voting rights as shareholder by reference to the terms of the 1940 settlement or of s. 4 of the Public Trustee Act, 1906, or otherwise.
It is no doubt true to say that their Lordships in the Bibby case(26) had not before them the special case of a trust with custodian and managing trustees, but we see no distinction in principle between that case and the case (say) of an ordinary settlement of shares containing a stipulation that the trustees (as registered holders of the settled shares) should at all times vote in accordance with the directions of the tenant for life. A stipulation of that kind clearly falls to be disregarded under the Bibby decision(26), and the statutory control accorded to the managing trustees over their custodian trustee is equally res inter alios so far as the company is concerned." (IRC v. Silverts Ld [1951] Ch 521 at 532 (CoA))
- But bare trustee does not
"We confess that we feel strongly, as did Romer, J., the weight of the argument based on common sense; and where the registered shareholder is a bare trustee in the sense of being a mere name or "dummy" for the true owner, we should feel strongly inclined to answer the question reserved by House in the Bibby case(26) in the same way as Lord Greene, M.R." (IRC v. Silverts Ld [1951] Ch 521 at 532 (CoA))
Whether to distinguish capacity as trustee from non-trustee capacity
RECEIVERSHIP
- Company in receivership still legally entitled to exercise power of control (even if receiver's decisions determine how)
"[128] Lewison J attached some significance to the reference to "voting power" in s.435(10)(b) IA 1986. The word "power" gave him "some encouragement to look to the economic reality of the case" (see [58]). In our view, however, the use of the word "power" takes matters no further. "[V]oting power" is apt to refer simply to the sum of the voting rights attached to the issued shares. It may be that the draftsman could have substituted "voting rights", but nothing can be inferred from his choice. It is notable that "voting rights" and "voting power" were used interchangeably in the Bibby case, especially in Lord Simonds' speech.
[129] In all the circumstances, we respectfully take a different view from Lewison J. As we see it, a person registered as the holder of shares carrying a third or more of the total votes attaching to the relevant company's issued shares, and so as between himself and the company "entitled to exercise … one third or more of the voting power", is also to be considered to be so entitled within the meaning of s.435(10)(b) IA 1986 and, hence, an associate of the company.
[130] In the present case, it would doubtless have been the Administrative Receivers rather than THSP's directors who would have decided how the company's shares in TUK should be voted had there been a general meeting on 31 December 2009. That, however, is neither here nor there. The Administrative Receivers would have been voting in THSP's name and on its behalf. It was THSP that was "entitled to exercise" the voting power and it is, accordingly, to be taken as having had control of TUK and so an associate of it. That the Administrative Receivers were also, presumably, associates of TUK is immaterial." (Granada UK Rental and Retail Ltd v. The Pensions Regulator [2019] EWCA Civ 1032)
LOAN CREDITORS
- Typical loan creditor rights where debtor in default do not give actual control over affairs
"[22] I have no hesitation in deciding that at no time was Fenlo under the control of Brinkley for the purposes of s 87A. The provisions of cl 13 of the facility letter are restricted in their scope and negative in their nature. They are typical of those found in agreements governing highly geared secured loans, such as this. Their purpose is to protect the financial interests of the lender: to ensure that the lender's security package is protected, that value is not leached out of the borrower and that the lender is provided with reliable financial information so that it can monitor the loan.
[23]I do not consider that the facility letter has the flavour of, or is akin to, articles of association of a company. Even if it was, the covenants in cl 13 are not sufficient to give Brinkley control over Fenlo. The cases indicate that control should be read as the ability to order the affairs of a company according to the 'controller's' wishes on a continuing basis. Fenlo contend that as Brinkley's wishes were restricted to the matters set out in cl 13 of the facility letter, the company was managed in accordance with those wishes. No evidence was submitted as to Brinkley's wishes or desires, and I cannot therefore accept that this is the case. Even if at the date of the facility letter, Brinkley's wishes were minimal and were reflected in cl 13, Brinkley would not have the ability to secure changes to Fenlo's business in the event that its wishes changed (for example in the light of changes to the circumstances of Fenlo's business). Finally, accepting Fenlo's argument would lead to the absurd result that banks and other lenders would be treated as controlling their borrowers in very many cases, as the covenants in cl 13 of the facility letter are typical of those found in many secured commercial loan agreements." (Fenlo v. HMRC [2008] STC (SCD) 1245, Judge Aleksander)