Buyer’s Group, and should therefore never, in all conscience, have been a liability of the Covenantors under the tax covenant in any event.
16 Discharge of Tax
10.4 Any payment made by the Buyer to the Covenantors under this clause 10 shall be applied to discharge the Tax Liability giving rise to the claim under this clause 10. The Covenantors shall not enforce any statutory right of recovery against the Buyer in respect of a Tax Liability to the extent that it has already made a recovery in respect of that liability under any statutory right or otherwise.
16.1 The statutory rights of recovery arise under the various tax provisions which have been detailed above. Therefore this clause is to ensure that the Covenantors are not entitled to recover under the covenant to pay and also under their statutory rights. The case of Mickfield Holdings Limited is in point (14.2.1).
17 The Tax Treatment of Payments under the Counter-Covenant
17.1 The wording at the start of this chapter refers to payments under the counter-covenant being by way of adjustment to the consideration. As the payments are made by the Buyer to the Covenantors, it is difficult to place any tax construction on the amounts except that they represent additional consideration for the shares. 17.2 If the amounts are due from and payable by the Company to the Covenantors, then a different construction then applies, providing that the Company is a party to the tax covenant and not merely the paying agent for the Buyer. In this situation the Company has made a payment which is probably a capital payment for the purposes of tax on chargeable gains. There is no asset acquired and it seems that this payment would create a capital loss in the Company.
17.3 The Covenantors have received a sum in respect of the disposal of their shares in the Company. This sum will be taxable on them.
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