Memorandum by the Department
of Trade and Industry
1997 (S.I. 1997/2945)
1.The Committee considered the above
instrument at its meeting on 13 January 1998 and has requested
a memorandum on the following points.
(1) Article 2 defines "business"
as meaning any undertaking (or part) which is
(a) carried on as a going
concern "for gain or reward"; or
(b) carried on as a going concern
in the course of which goods or services are "supplied otherwise
than free of charge".
Explain what sort of case is covered
by (b) which is not covered by (a)?
(2) Article 2 includes in the
definition of "unincorporated business" the assets of
a company. Is the meaning of "business" (as being
"carried on") applicable to this definition? If it
is not applicable and the definition of "unincorporated business"
is only required in the context of article 3(a)(ii) (its purchase
and sale), could not the effect of the definition be spelt out
in this context?
(3) Article 3, in describing
what is a nonnotifiable agreement in the case dealt with
by subparagraph (b), ie, where the agreement is for the
sale and purchase of shares in a company or companies which are
members of the same group, prescribes as a condition (iii) that
the equity bought and sold is equity in one company or companies
which are members of one group. Given the case dealt with by
subparagraph (b), explain what condition (iii) adds to the
description of the case.
2. In relation to the definition
of "business" in Article 2, we consider that paragraph
(b) would cover situations where goods and services are supplied
otherwise than to make without making a profit. These might not
fall within paragraph (a).
3. A similar definition of "business"
was used in the 1989 Restrictive Trade Practices (Sale and Purchase
and Share Subscription Agreements) (Goods) Order (SI 1989/1081)
and the definition stems originally from section 137(2) 1973 Fair
Trading Act. When the Fair Trading Bill was introduced into Parliament
the definition of "business" was simply stated to include
"any undertaking in the course of which goods and services
are supplied otherwise than free of charge". This definition
was expanded by Government amendment to include in addition any
undertaking "carried on for gain or reward". It had
been suggested that the definition, as introduced, excluded concerns,
such as insurance brokers, which provide services without charge
and derive their income from commission. The amendment aimed
to remove any doubt as to whether such concerns were covered.
4. In relation to the definition
of "unincorporated business", our view is that the definition
meaning of "business" as defined in Article 2 is applicable
to the use of the word "business" in the definition
of "unincorporated business" but is not applicable to
the word "business" in the phrase "unincorporated
business" itself. In each case the definition applies to
the expression in the inverted commas. The meaning of "unincorporated
business" includes assets of a company, and in the case of
such transfers the assets need not constitute an undertaking carried
on as a going concern. The definition of "unincorporated
business" is also applicable to the definition of "acquired
enterprise" also in Article 2. The location of these definitions
in Article 2 was a drafting choice. The Order has only five Articles
and this is not the sole example of a term, which appears in a
single substantive Article, being defined in Article 2. The choice
was made to locate all definitions in one Article rather than
include those relevant to only one Article within the relevant
Article. We accept that it would have been possible to define
"unincorporated business" and "acquired enterprise"
in Article 3, where the phrases are used, as the Committee suggests.
5. In relation to Article 3(b),
the words "a company or companies which are members of the
same group" refer back to 3(a)(i). The intention is that
in order for a sale and purchase agreement to be nonnotifiable
one condition is that the agreement must be for the sale of shares
in the same company or of companies which are members of the same
group. This is to avoid making nonnotifiable, for example,
agreements which are reciprocal sale and purchase agreements or
for shares in a number of unconnected companies. Applying the
Interpretation Act 1978, the word "company" in the first
line of Article 3(b) could be interpreted as including the plural
"companies". Condition (iii) was therefore included
to make clear that the shares the subject of the agreement must
be in the same "one" company or group.
19th January 1998