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D6.202 Scheme of reconstruction—overview

The basic premise behind a scheme of reconstruction is that where the original shareholders keep an interest in the original business then, subject to conditions, they will not be treated as having disposed of their original shares. Many schemes of reconstruction will be effected using specific provisions of the Companies Act 2006 or the Insolvency Act 1986. But it is not essential to use these. The relieving provisions¹ are capable of applying to any scheme of reconstruction that meets the required definition².

A scheme of reconstruction involving an issue of securities will, subject to meeting certain conditions (see D6.203), fall within the share reorganisation rules (D6.101–D6.103) and therefore should be neutral for chargeable gains tax purposes.

For details of a scheme of reconstruction involving a transfer of a business see D6.450.

In broad terms, a scheme of reconstruction deals with an arrangement between a company (A) and its shareholders