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Where a contribution is paid as the company winds down or sells off its assets (including subsidiaries), or parts of its business. it is a question of fact as to whether the payment

• is in respect of its investment business,
• is in respect of some other business (for example a trade or the business of a subsidiary), or
• is part of the cost of going out of business, see the examples at CTM08347.

Where a company with investment business is selling a subsidiary company it will generally be the case that the vendor company is able to demonstrate that any contribution it made was in respect of its investment business (CTM08353), see example at CTM08347. The paying company will often view the payment, legitimately, as being for the purpose of its reputation in not wishing to dispose of a company which carries a substantial deficit or to protect the morale of its continuing employees.

Such a sale may create a PeA95/S75 debt, a liability in the departing subsidiary, see CTM08354.  The parent (vendor company) may pay the debt or guarantee it.  Examination of the facts will show whether or not any payment was made in respect of its investment business and therefore whether relief is available.

Establishing the purpose will require a critical examination of all the documents and the evidence surrounding both the sale and the payment to establish the company’s purpose/intentions at the time the decision to pay the contribution was taken.  Where it is clear from the evidence that the contribution was made in respect of the investment business the argument should be accepted.  In less clear cut cases it is important to bear in mind the potential damage to its reputation for a company seen to be failing to fund properly the pensions for pensioners related to it or its group or associates.

Where such a contribution relates to orphan employees, CTM08355, and the subsidiary could not meet any payment from its own resources before the sale, it is also very likely that the company can demonstrate that the contribution was made in respect of its investment business.

Conversely if the subsidiary could have met the liability itself, or if the liability relates to its (the subsidiary’s) own current employees, then the reasons for a parent meeting the liability would be weakened.  The parent’s reasons for making the payment would need to be investigated further as outlined above to establish whether it had paid the contribution in respect of its investment business.