TC09613 - [2025] UKFTT 00989 (TC)

Fecha: 10-Jun-2025

The Facts

The Facts

The events we are concerned with took place a long time ago; Mr Burley invested in the Partnerships around 2000/2002 and effected the assignments around 2011. There are only a few contemporaneous documents available, but fortunately the key facts are not in dispute.

10.

We received witness statements from Mr Burley and two of his advisers (Mr Alan Pink and Mr Conor McErlean). Given the passage of time, their recollection of some events was not detailed, but we found all three to be straightforward witnesses and we accept their evidence.

11.

During Mr McErlean’s evidence and later, we were provided with material and explanations relevant to the accounts of the LLP. This was not provided in advance of the hearing but evolved in an ad hoc way during the hearing. Whilst the Tribunal adopts a flexible and accommodating approach to procedure and evidence, this was far from ideal. In the event, although we considered it important to understand the LLP’s accounts as best we could, nothing we learned from that exercise proved significant.

12.

The two Partnerships are Bothwell Media I (“BMI”) and Bothwell Media II (“BMII”). Each of the Partnerships purchased rights in a film from a production company, and then leased those rights back to the same production company in return for a revenue stream. There is no dispute that at all material times the Partnerships carried on trades in the UK.

13.

The sale and leaseback transactions described above resulted in both Partnerships realising losses in their first years of trading. A proportion of these losses were allocated to Mr Burley and were set against his income from other sources. In later years the Partnerships realised profits. Mr Burley was allocated a proportion of those profits and was prima facie liable to tax in respect of them.

14.

Investors in the Partnerships (including Mr Burley) funded their investment by borrowing from banks. The relevant loans were repaid in instalments together with interest, and income arising to the Partnerships under the sale and leaseback transactions described above was paid directly to the banks in discharge of those liabilities, which meant that Mr Burley did not receive cash distributions in respect of his profit allocations. The interest paid on the loans by investors was eligible for tax relief against their income, including their entitlement to profits from the Partnerships. It appears that the Partnerships ceased to receive income from the underlying films at or about the time that the loans were repaid.

15.

The hearing bundle contained a copy of a loan agreement dated 25 July 2001 between Mr Burley and Société Générale (“SG”). Under it, SG agreed to lend Mr Burley £1.144m to fund a capital investment of £1.4m in BMII. The loan agreement contained the following key provisions:

(1)

Mr. Burley undertook to repay the loan in annual instalments in such a way that the loan would be paid by the 14th anniversary of drawdown. The dates and amounts of each repayment were to be agreed by SG and Matrix Securities, acting on behalf of Mr Burley under a power of attorney which Mr Burley was required to sign before the loan was advanced.

(2)

Mr. Burley was required to pay interest to SG each year. The agreement contained some principles for calculating the rate of interest (to be agreed between SG and the Managing Partner of BMII acting on Mr Burley’s behalf). One principle was the following:

“In any event, the rate of interest will be a rate such that (in the absence of any obligation to pay the Bank increased costs on Clause 16 (Increased Costs)) the aggregate amount of the minimum license fee payable under the Master Distribution Agreement (as described in the Information Memorandum) (“Minimum License Fees”) in respect of the Relevant Films on any date is sufficient to make all repayments of principal pursuant Clause 4 of this agreement and/or interest due on such date in relation to the Relevant Loans.”

(3)

BMII was required to sign various security documents in SG‘s form and to comply with certain conditions before the loan was made available. The agreement provided that SG could in its absolute discretion except alternative security.

(4)

Mr. Burley had to give a number of undertakings to SG and these included a provision that “You may not assign or any of your rights under the Borrower’s Documents”. In turn, the “Borrower’s Documents” were defined as the loan agreement itself and “the subscription agreement for your interest in [BMII].”

(5)

The agreement contains a statement that “The Minimum License Fees received by the Bank in respect of Relevant Films on any date will be used by the Bank to reduce or pay off the amount due from the Relevant Borrowers on that date”. “Relevant Films” were those purchased by BMII using capital subscriptions from Mr Burley and others to whom SG lent money to buy the same Relevant Films (all such borrowers being “Relevant Borrowers”).

(6)

At the beginning of the document was a statement that “The bank will take security from [BMII] in respect of the Loan. This does not lessen or remove your personal liability as borrower of the Loan which is not limited to assets of [BMII]. You are and will remain fully responsible for the payments due under this Agreement.”

16.

The hearing bundle contained a copy of a Companies House Form 395, which records the particulars of a mortgage or charge. It shows that on 11 September 2001 MFB Film (UK) Limited (“MFB”) granted a charge over assets (for itself and as agent and attorney for BMII) in favour of SG. Key features of the charge are:

(1)

BMII and BMF assigned to SG by way of first ranking absolute assignment (subject to a proviso for reassignment at the end of the Security Period, defined as when all the Secured Liabilities “have been unconditionally and irrevocably paid or discharged in full and no more may arise under the terms of any of the Finance Documents”) a number of assets/rights (defined as the “Charged Assets”) including “all present and future Minimum Revenue Entitlement” (defined as the sums, and the right to receive the sums, described as rent in the lease).

(2)

The “Secured Liabilities" means all present and future obligations and liabilities of the Borrowers (defined as the partners in BMII identified in the charge) or any of them to SG (whether for itself or as agent) or to any other financial institution which has an interest whether legal or beneficial and whether now or in the future in the Facility Letters or any of them in respect of any of the Loans (including interest and break costs relating thereto} or which are intended to be secured by any Finance Documents.

(3)

The “Loans” are defined as the loans made available by SG to Borrowers to fund their capital contribution to BMII and the “Facility Letters” are the facility letters pursuant to which SG agreed to make the Loans available to a Borrower.

(4)

The charge contained a provision that:

“Neither the Partnership nor the Chargor shall without the prior written consent of the Chargee sell, part with, lease, transfer, assign or otherwise dispose of, or create any interest in, by one or more transactions (whether related or not and voluntarily or involuntarily) all of any part of the Charged Assets.”

17.

As we do not have any financing documents relating to BMI, it was agreed that we should proceed on the basis that finance for Mr Burley’s investment in BMI was provided in the same way as his finance for BMII, although the financing for BMI came from Barclays Bank. We do not have copies of any other documentation (for example, partnership agreements for the Partnerships or a members’ agreement for the LLP).