This section applies where—
an arrangement between a company ("company A") and—
the persons holding shares in or debentures of the company, or
where there are different classes of shares in or debentures of the company, the persons holding any class of those shares or debentures,
is entered into for the purposes of, or in connection with, a scheme of reconstruction, and
under the arrangement—
another company ("company B") issues shares or debentures to those persons in respect of and in proportion to (or as nearly as may be in proportion to) their relevant holdings in company A, and
the shares in or debentures of company A comprised in relevant holdings are retained by those persons or are cancelled or otherwise extinguished.
Where this section applies—
those persons are treated as exchanging their relevant holdings in company A for the shares or debentures held by them in consequence of the arrangement, and
sections 127 to 131 (share reorganisations etc) apply with the necessary adaptations as if company A and company B were the same company and the exchange were a reorganisation of its share capital.For this purpose shares in or debentures of company A comprised in relevant holdings that are retained are treated as if they had been cancelled and replaced by a new issue.
Where a reorganisation of the share capital of company A is carried out for the purposes of the scheme of reconstruction, the provisions of subsections (1) and (2) apply in relation to the position after the reorganisation.
In this section—
"scheme of reconstruction" has the meaning given by Schedule 5AA to this Act;
references to "relevant holdings" of shares in or debentures of company A are—
where there is only one class of shares in or debentures of the company, to holdings of shares in or debentures of the company, and
where there are different classes of shares in or debentures of the company, to holdings of a class of shares or debentures that is involved in the scheme of reconstruction (within the meaning of paragraph 2 of Schedule 5AA);
references to shares or debentures being retained include their being retained with altered rights or in an altered form, whether as the result of reduction, consolidation, division or otherwise; and
any reference to a reorganisation of a company's share capital is to a reorganisation within the meaning of section 126.
This section applies in relation to a company that has no share capital as if references to shares in or debentures of the company included any interests in the company possessed by members of the company.
This section has effect subject to section 137(1) (scheme of reconstruction must be for bona fide commercial reasons and not part of tax avoidance scheme).