Many will see the introduction of entrepreneurs’ relief as little compensation for the abolition of taper relief, and the increase in CGT from 10% to 18%.

ER is loosely based on the old retirement relief, but there is no minimum age requirement. It applies to disposal of interests in businesses and of shares in trading companies, if held for more than one year. But, there are important restrictions and it should be noted that relief will not be available for many disposals which would potentially have attracted the 10% rate under the taper relief regime, including:

• disposals of assets of a business (as opposed to all or part of the business itself), for instance a farmer selling a single field but continuing to trade;
• sales of shareholdings of less than 5% (this will have a major impact on employee share schemes);
• sales of assets let to sole traders, partnerships or unlisted trading companies;
• gains of over £1m (there is a lifetime cap on the amount of ER which any individual may claim).

Those who sold their businesses last year for a combination of cash and loan notes will be particularly hard hit by the new rules. Those with non-QCD loan notes will only get ER if they continue to satisfy the conditions for the relief (ie hold more than 5% of the shares in the company), which of course will never apply because the whole point of their sale was to dispose of their shareholdings. See [2008] NLJ 429 .

Insolvency – validity of appointment

The number of insolvency-related sales is likely to increase. When dealing with a purchase from an insolvency practitioner the buyer will usually have to accept a lower level of legal protection. For instance, there will usually be no covenants, warranties or indemnities in favour of the buyer, and the IP may well refuse to answer any pre-contract enquiries. Most buyers will accept that, but it is often worth reminding the client that the IP-seller may not have access to all the selling company’s tax records which means (i) it may be unclear whether a VAT election has been made for the property; (ii) it may be unclear whether the IP should be using the company’s VAT registration; and (iii) there may be no disclosure of the capital allowances history of the property.

From the conveyancing point of view, the initial task for the buyer is to check the validity of the appointment:

Check the appointment and acceptance of appointment. If there are two receivers or administrators, check whether they can act jointly and severally. Likewise, obtain a copy of a liquidator’s appointment (a copy of the chairman’s certificate in a voluntary winding up, or a sealed copy of the court order for a winding up by the court). If in doubt, check his status as an IP. Once again, the appointment should confirm whether joint liquidators can act severally. Undertake a company search to establish that no notice of resignation or removal has been filed.

• Look at the debenture. The ability of the secured creditor to appoint joint receivers must be provided for in the debenture.
• Get confirmation from the receiver’s lawyers that a demand was properly made under the debenture (or other circumstances entitling the appointment).
• Do a company search to see if the debenture was registered under s395 CA 1985, and whether there are any other charges over the assets (which may mean consents are required), and also whether the appointment of the receiver or administrator has been notified to the Registrar of Companies. If dealing with administrators, the court’s consent may be required for disposal of assets free from charges or other encumbrances (in which case, insist on a copy of the court order).
• If the seller is an administrator, and the initial creditor’s meeting has taken place, then you will need a copy of any creditor’s resolutions approving the administrator’s proposal.

One final point is to ask for confirmation that the consent of any mortgagee to the sale has been obtained before contracts are exchanged. Although this is principally the seller’s concern, the buyer will want reassurance – because he will have limited recourse against the company or IP if unable to complete the contract because a mortgagee will not release its security on completion. For an excellent introductory article see [2008] NLJ 432 . © Practical Lawyer