Pearse Trust Blog

The UK has asked ten crown dependencies to sign tax sharing agreements in a letter issued by UK Prime Minister David Cameron.

Further to our recent blog post outlining the key facts of members’ voluntary liquidations (MVL), the following is intended as a summary of the key facts of the creditors’ voluntary liquidation (CVL) procedure available to insolvent private limited companies in the UK.

Creditors’ Voluntary Liquidations Explained

A CVL is a procedure typically instigated by the directors of an insolvent company where it has been established that the company’s liabilities exceed its assets, or where it cannot pay its debts as they fall due, and therefore cannot carry on its business. The procedure is governed by the Insolvency Act 1986 and the Insolvency Rules 1986 (SI 1986/1925).

With certain exceptions, a UK incorporated company is resident in the UK for tax purposes. This feature of UK company residence is known as ‘the incorporation rule’.

The Companies Act 2006 (“CA 2006”) defines a distribution as “every description of distribution of a company's assets to its members, whether in cash or otherwise" (section 829), with the most common form being a dividend.

Earlier this year we published a blog on the Exchange of Information Agreement between the Isle of Man and the UK At the end of the article we wondered which country might be next to sign up for this type of agreement. Not long afterwards, on 18 March, Guernsey announced a ‘FATCA style’ agreement with the UK. Peter Harwood, the Chief Minister in Guernsey, announced that the exchange of information deal with the UK was an effort to combat tax evasion and stated: 

On 26 October 2012, the England and Wales Court of Appeal delivered an important judgment in Petrodel Resources Ltd & Ors v Prest & Ors [2012] EWCA Civ 1395.

The UK’s Budget was announced on March 20^th.  As the Chancellor put it himself there were no easy answers to the problems currently facing the UK economy. The tax content of the speech included strong words on tax avoiders and abusers, with further commitments to incentivise businesses and individuals who stay the right side of the line. While there were no major surprises or changes to the UK tax system, there were some alterations worth noting.

The Isle of Man Government has agreed that the island’s banks will report on their British clients’ financial transactions to the UK tax authorities. Both Governments will collect the information from their banks and exchange this information on an annual basis. This information sharing agreement will closely follow those negotiated with the US. Allan Bell, Chief Minister of the Isle of Man, described the move as a “major repositioning of the Isle of Man for the future”.

A solvent company registered in England and Wales may be wound up by means of a Members’ Voluntary Liquidation (‘MVL’).  An MVL is a process by which the value of the assets of a company are realised and distributed to the company’s creditors and members.  This form of liquidation procedure is often used where a company was formed;

On 23 January 2013, the United Kingdom’s Supreme Court delivered its judgment in the case of Prudential plc v Special Commissioner of Income Tax.  It held, by a majority of five to two, that the doctrine of legal professional privilege applies only to communications between clients and their lawyers.  It does not extend to communications between clients and other professionals, for example accountants or other financial advisors.