'in the circumstances mentioned below in this section'.
§ Mr. Eyre
Before we consider the amendments, it might be helpful if I remind the House of the background to them and in particular of the revised proposals introduced by the Government in Committee.
Section 56 of the 1948 Act deals with the treatment of premiums on issue of shares for cash or otherwise. In certain forms of acquisitions and mergers shares are issued for shares. The application of section 56 in such cases has, since 1948, given rise to two distinct schools of thought. One favours the strict interpretation of section 56, so that share premium account is recognised in all cases and pre-acquisition profits are locked up. The other sees scope for a more liberal interpretation whereby no share premium account may be recognised and pre-acquisition profits remain available for distribution.
In early 1980 a decision in the High Court in the case of Shearer v. Bercain involved a strict interpretation that resulted in fairly restrictive prospective relief from section 56.
In response to proposals, the CBI convened a working party comprising CCAB and Law Society representatives to consider whether a consensus in favour of a broader prospective relief could be established. Such a consensus was established and the proposals were submitted to the Government in June. In essence, the working party proposed, and the Government accepted, that relief from section 56 should be available in the case of any share or share transactions involving the issue of equity shares by one company as a result of which it becomes the holder of 90 per cent. of the equity shares in another company.
The working party made other recommendations which have been taken into account. Apart from the forthcoming regulations, the provisions in the Bill follow closely the CBI working party recommendations.
Clause 35 gives effect to the working party's main recommendation in respect of prospective relief. The retrospective provisions of clause 37 remain largely unchanged.
Clause 36, dealing with infra-group reconstruction, like the previous clause 38, is maintained as providing useful separate circumstances for which relief is to be made available.
Representations have been made to the Department that there is some ambiguity in the wording of clause 34 that may lead to the conclusion that the prospective relief by clauses 35 and 36 is available only in respect of qualifying transactions effected between 4 February 1981—the date of the Bill's publication—and the date of Royal Assent. This is not correct, but the Government have introduced these amendments to clarify the objective of this clause. 205 Amendment agreed to.
Amendments made: No. 12 in page 41, line 20, leave out from 'company' to 'only' in line 22 and insertissues or has issued shares in circumstances to which either of those sections applies, but in the case of an issue which took place before the section in question came into operation'.No. 13, in page 41, line 27, at end insert—
'(4) References in sections 35 to 37 of this Act to the issuing company are references to the company issuing the shares as mentioned in subsection (2) or (3) above.'—[Mr. Eyre.]