UT (Tax & Chancery) UT/000086, 87, 89/2022 - [2024] UKUT 00058 (TCC)

The FTT recited the evidence and made findings of fact in various sections of the Decision between [21] and [279]. We shall refer to specific findings of the FTT when we come to consider the issues. For present purposes we can summarise the FTT’s material findings of fact as follows.

Mr Lenagan founded Workplace in 1986. It was a market leader in the design and sale of software for staff scheduling and time, attendance and work management. By the year 2000, Mr Lenagan held 45% of the shares. The IFL Trust and the S & A Trust together held 39%. The remaining 16% was held by another director and a trust set up by that director.

In 1991, Mr Lenagan and Mr Haworth founded Teleware. It developed and sold software for the computer control of telephony, messaging and voice response applications. By the year 2000, Mr Haworth held 20% of the shares and the GRH Trust held 30%. Mr Lenagan held 6% and another trust set up by Mr Lenagan held 44%.

In late 1999, there was a possibility that Workplace would be sold, with interest from two US companies. However, the directors received advice that a merger and flotation of Workplace and Teleware would result in an increased valuation. Dresdner Kleinwort Benson (“DKB”) suggested that a base case valuation of between £294 million and £322 million might be achieved. This would represent price earnings multiples of 133 and 86 times post-tax profits of the two companies.

On 29 March 2000, DKB were appointed as underwriter/sponsor for a proposed flotation of the merged companies by the directors of Teleware and Workplace, which included Mr Lenagan and Mr Haworth. This did not commit the companies to the merger or the flotation but it did involve a heavy work commitment. DKB proposed that the value attributable to Teleware and Workplace would be in the ratio 60:40 respectively. It was a “firm proposal” but certainly not binding.

There were significant and obvious advantages to a merger and flotation, both for the businesses and for the shareholders. In particular the shares would become freely saleable and the shareholders would be provided with additional valuable protections.

Mr Lenagan and Mr Haworth were in contact with the trustees of their respective family trusts and informed them of the proposals being explored.

Mr Maslen was an adviser to Mr Haworth and the GRH Trust. Mr Pentelow was an adviser to Mr Lenagan. They took advice from counsel that CGT would not be due on any gains accruing to trustees resident in Mauritius if UK trustees were subsequently appointed within the same tax year. This was the round the world scheme. The advice was conveyed to Mr Lenagan and Mr Haworth. The effect of the UK CGT regime was such that the tax planning, if successful, would result in savings of tax which would otherwise be borne by the trusts.

Given the possibility of a disposal of shares by the trustees in the course of a flotation, Mr Maslen made contact with potential trustees in Mauritius, including Deloitte & Touche Offshore Services Limited (“DTOS”). Mr Haworth and Mr Maslen visited Mauritius and met with potential trustees on 15and 16June 2000.

TeleWork was incorporated, and on 23June 2000 the directorsof TeleWork decided to pursue the merger and flotation proposal. A board minute recorded that the shareholders of Teleware and Workplace, including the Jersey trustees, had indicated their intention to proceed with the merger.

The Jersey trustees of the GRH Trust resigned on 26 June 2000. The Jersey trustees of the IFL Trust and the S & A Trust resigned on 30 June 2000. DTOS and a Mr Gujadhur, who was a director of DTOS, accepted appointment to act as trustees of all three trusts on 28 June 2000. DTOS and Mr Gujadhur were both resident in Mauritius.

The merger and flotation proposal was put to the shareholders of Teleware and Workplace, including the Mauritius trustees in their capacity as trustees of the family trusts. Once the Mauritius trustees had agreed to accept appointment, they took steps to consider the commercial rationale of the proposed transactions. This included speaking to Mr Wailing, who was the finance director of both Workplace and Teleware. The Jersey trustees and the Mauritius trustees had all been advised on the transactions by Pinsent Curtis solicitors (“PC”). The FTT found as follows at [182]:

The first public announcement of a possible merger and flotation was made on 29June 2000 and a “roadshow” was organised. The process was managed by DKB as sponsor.

The following transactions took place on 6 July 2000:

The Workplace shareholders did not immediately exchange their shares for TeleWork shares. That exchange of shares was conditional upon the flotation offer price being agreed by DKB and TeleWork and a placing agreement being entered into for a placing of shares on the London Stock Exchange.

On or shortly before 10 July 2000, the shareholders in TeleWork and Workplace, including the Mauritius trustees, agreed to enter into a placing agreement. Some shareholders, including the Mauritius Trustees, signed powers of attorney to ensure that the final documents could be executed at the relevant time. The attorneys could exercise the powers conferred upon them only in accordance with the directions of the relevant shareholder. The placing agreement committed the shareholders to the flotation. The shareholders agreed to sell the number of TeleWork shares specified in a schedule to the agreement within a specified price range, which was between 110p-145p. This was equivalent to a multiple of over 100 times post-tax profits. In due course the price was set at 145p.

Some shareholders, including the GRH Trust and the S & A Trust agreed to sell further shares at the offer price. This was at the discretion of DKB, if DKB decided to exercise an “Over-Allotment Option”. This was referred to as the “greenshoe option” and was common practice on a flotation.

On 31 July 2000, the Workplace shareholders exchanged each of their shares for one share in TeleWork. TeleWork thereby acquired the entire share capital of Workplace. Following this share exchange, the issued share capital of TeleWork was held as follows:

Between late June and early August 2000, the Mauritius trustees were asked by Mr Haworth and Mr Lenagan to consider some relatively small appointments of shares and cash from the family trusts into various sub-funds of the trusts and to certain new settlements. This was on the advice of UK leading counsel with a view to ensuring that the Mauritius trustees were resident in Mauritius by reason of a liability to income tax. In each case the trustees took advice from the PC trusts team, to check that the request was within their powers and in the interests of the beneficiaries. Each trust made various appointments between 30 June 2000 and 1 August 2000.

Immediately prior to the flotation Teleware had 166,666,700 issued shares. The flotation occurred on 3 August 2000 with the placing effected at a price of 145p. The greenshoe option was exercised on 8 August 2000. In total, 29.2% of the issued share capital was disposed of in the flotation. The three trusts disposed of the following shares, including via the greenshoe option:

On 24 October 2000, the Mauritius trustees resigned as trustees of each of the family trusts. Kleinwort Benson Trustees Limited and two individual trustees were appointed at which stage the trusts all became UK resident for CGT purposes.