Effect of reverse takeover

PhotonStar LED had around 15 enterprise investment scheme (EIS) investors and wished to obtain a listing on the alternative investment market (AIM).

The business moved to speed up the process by opening negotiations for a reverse takeover with an existing AIM company Enfis Group which was also in the LED lighting business; its shares qualified for EIS.

HMRC confirmed Enfis would continue to be a qualifying company for EIS purposes. The company acquired all PhotonStar shares in December 2010.

The Revenue then wrote to PhotonStar stating the business no longer qualified for EIS on the basis shares are no longer eligible when a company becomes the 51% subsidiary of another (ITA 2007 s 185) or where shares are sold within three years of their issue (ITA 2007 s 209).

Four investors appealed arguing that PhotonStar had not become a 51% subsidiary of Enfis because the...