Companies Act 2014 section 118

Prohibition on pre-acquisition profits or losses being treated in holding company's financial statements as profits available for distribution

Section 118 prohibits a holding company from treating accumulated profits or losses of a subsidiary that arose before the acquisition date as distributable profits in the holding company's financial statements.

• Pre-acquisition profits or losses attributable to shares in a subsidiary cannot be shown as distributable profits in the holding company's financial statements.
• Where it is not practicable to determine the exact split of profits or losses around the acquisition date, they may be apportioned on a day-to-day basis across the financial year.
• The prohibition can be overridden if the company follows the Summary Approval Procedure, allowing all or a specified proportion of pre-acquisition profits to be treated as distributable.
• The prohibition does not apply where the shares were acquired in certain transactions involving mergers, group reconstructions, or share-for-share exchanges under sections 72, 73 or 75.