Section 164: Sections 160 and 162: supplementary
653.This section explains how the “quoted parent company” test is applied. It is based on paragraph 1 of Schedule 18 to ICTA.
654.In accordance with section 158 a holder of restricted preference shares does not count as an equity holder. Such shares may carry the right to conversion into shares or securities in the company’s “quoted parent company” (see section 160(4)(c)). In order to establish whether the company (S) is a 75% subsidiary of the possible quoted parent company (P) it may be necessary to know whether P is an equity holder in S (see section 151(4)). So the process becomes circular.
655.A similar circularity can result from consideration of whether a loan is a normal commercial loan. The loan may carry the right to conversion into shares or securities in the company’s “quoted parent company” (see section 162(2)(c)). Again, it is necessary to establish whether the company is a 75% subsidiary of the possible quoted parent company.
656.Subsection (1) deals with shares. It applies if all the conditions in section 160 are met, apart from the one (B) which may depend on conversion to shares or securities in a quoted parent company.
657.Subsection (2) deals with securities. It applies if all the conditions in section 162 are met, apart from the one (A) which may depend on conversion to shares or securities in a quoted parent company.
658.Subsection (3) sets out the main condition for a company having a quoted parent company: it must be a 75% subsidiary; and the parent’s shares must be quoted on a stock exchange.
659.Subsection (6) sets the scope of the rule which breaks the circularity. It applies only for the purposes of sections 160 and 162 and this section.
660.Subsection (7) is the rulewhich breaks the circularity: the “candidate company” is assumed to be a quoted parent company.
