Dividend Stripping / Distribution of Surplus Profits Arrangements

An associate of a company with retained earnings and/or current year profits (the 'target company') acquires 'A' class shares in New Co at a nominal value, for example $1. The shareholders of the associate are also shareholders (or associates of shareholders) of the target company. 2. The target company acquires 'B' class shares in New Co at a considerable premium. 3. The rights of the 'B' class shares in New Co are varied to restrict the amount payable on liquidation, with the result that: • the value of the 'B' class shares is reduced; and • there is a commensurate increase in the value of 'A' class shares. 4. The target company makes a book loss on the acquisition of the 'B' class shares in New Co, which is offset against the retained earnings and/or current year profits. 5. The assets of New Co are distributed on liquidation to the associate holding the 'A' class shares. Broadly, the assets of New Co consist of the amount paid by the target company for the 'B' class shares.