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Issue 2 – Form of the demerger and the role of Cooper Parry
Issue 2 – Form of the demerger and the role of Cooper Parry
In summary, it is argued on behalf of the Claimants that:
This is set out at clause 16.1, as clause 16.2 and Schedule 4 are provisions without prejudice to those at clause 16.1. As to the form the demerger should take, then clause 16.1 provides -
there should be a demerger of PPL;
pursuant to which the properties held by PPL will be transferred to the Defendants on the one hand and the Claimants on the other hand (or in each case a corporate vehicle incorporated by them); and
the demerger is implemented in a manner that minimises the tax burden as far as possible for each party.
Clause 16.2 provides that the parties should -
instruct Cooper Parry Advisory Limited (who are PPL’s accountants) to provide the tax advice required to implement the demerger; and
procure that the demerger is implemented in all material respects in accordance with the advice obtained from Cooper Parry.
It is the Claimants’ position that Cooper Parry (as required by clause 16.1) should be instructed to advise on how the demerger is implemented in a manner that minimises the tax burden as far as possible for each party.
The Defendants appear to place strong reliance on Schedule 4. However, in the context of the primacy of the language of clause 16.1, the provisions in Schedule 4 are simply to ensure that Cooper Parry, as part of their wider consideration of the tax efficient methods, consider a share capital reduction Had the parties reached a binding agreement, irrespective of the taxation advice received, that the demerger was to be by way of a share capital reduction, then that agreement would have been found in the language of clause 16.1.
In summary, it is argued on behalf of the Defendants that:
as with Issue 1, the words of Schedule 4 of the SBA speak for themselves. It expressly provides for a capital demerger only; and
the only reasonable construction is that the parties were to use all reasonable endeavours to negotiate and agree a demerger of PPL by way of a share capital reduction in the most tax efficient manner.
In my judgment, and in this particular regard, the drafting of Clause 16 of the SBA is poor. It is confusing and internally inconsistent in that:
Clause 16.1 provides (with my emphasis added) that “The parties shall….use all reasonable endeavours to negotiate and agree the terms of a demerger of PPL”.
Clause 16.1.3 provides (with my emphasis added) that “any such demerger is implemented in a manner that minimises the tax burden as far as possible for each party”.
Clause 16.2 provides (with my emphasis added) that “PPL instructs Cooper Parry…. to provide the tax…advice… required to implement the demerger referred to in clause 16.1 in materially the form summarised in clause 16.1 and Schedule 4”.
Schedule 4 repeatedly refers the to demerger of PPL solely by way of share capital reduction.
Therefore whilst it appears from the wording of Schedule 4 that the parties had agreed the specific form of the demerger, clauses 16.1 and 16.1.3 nevertheless refer to an unspecified form of demerger, which reads as if the form was still to be agreed.
Turning then to consider the extent to which, if at all, there are any indications arising from the wider context. The overall purpose of clause 16 is to facilitate the demerger of PPL in a manner that, with the assistance of Cooper Parry, minimises the tax burden as far as possible for the parties. It does not appear that the parties took any tax advice before agreeing to the demerger. The Defendants’ proposed construction therefore makes no commercial sense since, if correct, it would result in a potential absurdity whereby the parties were required to proceed by way of a share capital reduction even when, once instructed, Cooper Parry considered that there was an alternative and more tax efficient method of demerger (such as a liquidation demerger of PPL).
Therefore, I prefer the Claimants’ proposed construction on issue 2.