Patrick W. Keane and Company Ltd v Revenue Commissioners
| Jurisdiction | Ireland |
| Judge | Mr. Justice John Edwards |
| Judgment Date | 18 December 2007 |
| Neutral Citation | [2007] IEHC 466 |
| Docket Number | No. 329R /[2007] |
| Court | High Court |
| Date | 18 December 2007 |
[2007] IEHC 466
THE HIGH COURT
BETWEEN
AND
TAXES CONSOLIDATION ACT 1997 S941
TAXES CONSOLIDATION ACT 1997 S943
COMPANIES ACT 1963 S201
COMPANIES ACT 1963 S203
STAMP DUTIES CONSOLIDATION ACT 1999 S119
STAMP DUTIES CONSOLIDATION ACT 1999 S80
SOUTH AFRICAN SUPPLY & COLD STORAGE CO, RE 1904 2 CH 268
BROOKLANDS SELANGOR HOLDINGS LTD v INLAND REVENUE COMMISSIONERS 1970 1 WLR 429
FALLON v FELLOWS 2001 STC 1409
FINANCE ACT 1927 S55(1) (UK)
BAYTRUST HOLDINGS LTD v INLAND REVENUE COMMISSIONERS 1971 1 WLR 1333
SWITHLAND INVESTMENTS LTD v INLAND REVENUE COMMISSIONERS 1990 STC 448
FINANCE ACT 1927 S55 (UK)
CAPITAL GAINS TAX ACT 1979 S86
HOOPER v WESTERN COUNTIES & SOUTH WALES TELEPHONE CO LTD 1892 86 LT 78
BOWLING & WELBY'S CONTRACT, RE 1895 1 CH 663
RUSSIAN & ENGLISH BANK & FLORENCE MONTEFIORE GUEDALLA v BARING BROTHERS & CO LTD 1936 AC 405
STAMP DUTIES CONSOLIDATION ACT 1999 S80(4)
REVENUE LAW
Stamp duty
Case stated - Whether arrangement âÇÿreconstruction' within meaning of Stamp Duties Consolidation Act 1999, s 80 - Streaming of shares - Ordinary shares redesignated and new class of shares created - Whether reorganisation qualified for exemption - Concepts of reconstruction and partition - Whether reorganisation bona fide scheme of reconstruction - Whether reconstruction and partition mutually exclusive - Objectives of statutory provision - Whether underlying ownership of undertaking substantially unaltered - Res judicata - In re South African Supply and Cold Storage Co [1904] 2 Ch 268, Brooklands Selangor Holdings Ltd v IRC [1970] 1 WLR 429, Fallon v Fellows [2001] STC 1409, Swithland Investments Ltd v IRC [1990] STC 448, Baytrust Holdings Ltd v IRC [1971] 1 WLR 1333 and Hooper v Western Counties and South Wales Telephone Company Ltd (1892) 68 LT 78 considered - Taxes Consolidation Act 1997 (No 39), s 941 - Companies Act 1963 (No 33), s 203 - Stamp Duties Consolidation Act 1999 (No 31), s 80 - Case answered in the negative (2007/329R - Edwards J - 18/12/2007) [2007] IEHC 466
Patrick W Keane & Company Ltd v Revenue Commissioners
Facts: On a case stated from the Circuit Court pursuant to s. 941 Taxes Consolidation Act 1997 as amended, a question was posed to the Circuit Court as to whether the arrangement in the case constituted a reconstruction within the meaning of s. 80 of the Stamp Duties Consolidation Act 1999. A dispute between shareholders was settled by agreement and certain shares were redesignated and a new class of shares was created. A petition was presented seeking sanction for the scheme and reconstruction pursuant to s. 203 of the Companies Act 1963. The Revenue Commissioners concluded that the reorganisation of the company was not effected in pursuance of a bona fide scheme of reconstruction pursuant to s. 80.
Held by Edwards J. that to avail of the s. 80 exemption the quality of ownership enjoyed by the party claiming that exemption had to be real and meaningful and not merely technical. It was not a bona fide scheme of reconstruction of the purposes of s. 80. The doctrine of res judicata did not apply in the proceedings. The answer to the question posed would be “No”.
Reporter: E.F.
This is a case stated by His Honour Judge Patrick Moran, a Judge of the Circuit Court, pursuant to s. 941 of The Taxes Consolidation Act,1997as extended by s. 943 of the same Act, at the request of the Revenue Commissioners, the respondents named in the title to these proceedings. The relevant provisions provide, in substance, that after the determination of an appeal against an assessment to tax by an Appeal Commissioner, or the Circuit Court, as the case may be, a party dissatisfied with the determination as being erroneous in point of law, may declare his or her dissatisfaction and require the appellate tribunal (the Appeal Commissioner or the Circuit Court, as the case may be) to state and sign a case for the opinion of the High Court on the determination. In the case stated by His Honour Judge Moran dated 27th April, 2007 this court is asked to answer the following question:-
"Does the arrangement in the present case constitute a 'reconstruction' within the meaning of s. 80 of the Stamp Duties Consolidation Act, 1999?"
Prior to November, 2001 the appellant Patrick W. Keane and Company Limited (hereinafter referred to as "the company"), had five shareholders, namely Catherine Neville, Tim Keane, Gerard Keane, Pat Keane and Liligan Limited (a company controlled by Gerard Keane and Pat Keane). The company carried on a jewellery business. It had jewellers shops at Oliver Plunkett Street, Cork, Winthrop Street, Cork, Patrick Street, Cork and High Street, Killarney, County Kerry. In addition, it had a property at 2A Pembroke Street, Cork and it also had an investment property portfolio comprising properties at Cook Street, Cork, North Main Street, Cork and Brentwood, Wilton, Cork. It appears that a dispute arose between the shareholders that was subsequently settled by agreement. This court has been informed by counsel for the company (the appellant), Mr. Shipsey, S.C., that this agreement (for clarity hereinafter called "the initial agreement") was entered into "about a month" before a subsequent agreement of the 23rd November, 2001 and with which this court is centrally concerned. For the purposes of the initial agreement, the ordinary shares in the company were redesignated into "A shares" "B shares" and "C shares". In addition a new class of shares, namely the "E" shares where created. However, Article 4.2. of the company's Articles of Association provided that the holders of the "E" shares were not entitled to receive notice of, attend or vote at general meetings of the company or even to receive copies of the accounts of the company. The company's Articles of Association further provided that the "E" shareholders were not entitled to any distribution save such distribution as might be approved by the company in general meetings (which they had no right to attend, or to vote at). The "A" shares were held by Catherine Neville; the "B" shares were held by Tim Keane and the "C" shares were held by Gerard Keane and Pat Keane and Liligan Limited. "E" shares in the company were issued to each of Catherine Neville, Tim Keane, Patrick Keane, Gerard Keane and Liligan Limited. The Articles of Association were amended to provide that the "A" shares were to benefit only from the "A" assets, the "B" shares were to benefit only from the "B" assets and the "C" shares were entitled to benefit only from the "C" assets. Essentially, each of the assets and businesses hereinbefore described were divided into three classes of assets. The premises and business of the company at Winthrop Street, Cork, known as the "Swiss Gem Business" together with the investment property portfolio became the "A" business; the premises and business of the company carried on at 116 Patrick Street, Cork, known as the"Michel's Business ", became the "B" business while the balance of the assets of the company were attributed to the "C" business.
On 23rd November, 2001 a further agreement, (to which I have already alluded) was entered into between the company and its shareholders and certain other parties, pursuant to which the trades and businesses previously carried on by the company would henceforth be carried on by two separate and distinct companies, namely Harrowby Limited and Ritaville Limited, and partly by the company itself. The learned Circuit Court judge has appended a copy of this agreement as Appendix I to his Case Stated. Pursuant to this agreement the "A" assets of the company were transferred to Harrowby Limited (which is controlled by Catherine Neville). "E" shares in Harrowby Limited were issued to the holders of the "E" shares in the company in proportion to the number of "E" shares held by them in the company. The "B" assets of the company were transferred to Ritaville Limited (which is controlled by Tim Keane). "E" shares in Ritaville Limited were also issued to the holders of the "E" shares in the company in proportion to their holdings of "E" shares in the company. The "C" assets remain with the company which is now controlled by Gerard Keane and Patrick Keane.
It was a term of the agreement dated 23rd November, 2001 that an application would be made to High Court for sanction under the terms of s. 201 to s. 203 of the Companies Act, 1963. Thereafter a scheme of arrangement and reconstruction was prepared and the shareholders of the company approved the scheme of arrangement and reconstruction at a meeting held on 13th March, 2002 pursuant to an order of the High Court made on 18th February, 2002. A petition was then presented to the High Court on 27th March, 2002 seeking sanction for the "scheme of arrangement and reconstruction" pursuant to s. 203 of the Companies Act, 1963. By order of the High Court made on 22nd April, 2002 the High Court, (Kearns J.) sanctioned the scheme. In the terms of the order made by the High Court, it was expressly recited that it was shown to the High Court "that a scheme of arrangement and reconstruction has been proposed for the purposes of the reconstruction of the company and that under such scheme, certain undertakings and property of the company are to be transferred to Harrowby Limited and Ritaville Limited". The learned Circuit Court judge has appended a copy of the petition presented to the High Court together with the affidavits grounding same and the documents exhibited in the said affidavits as Appendix 2 to his Case Stated. He has further appended a copy of the order of the High Court...
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