Originally established for the production of motor vehicles, Rolls-Royce diversified its operations over time which included, amongst others, the manufacture of aeroplane engines. The company ran its operations a single trade but split into six divisions. The company ran into serious financial difficulties and a receiver was appointed. The receiver transferred four of the divisions to a state-owned company, including the aeroplane engines division which had accumulated substantial trading losses. The remaining two divisions were transferred to a new subsidiary company of Rolls-Royce which claimed relief under the provisions of ICTA 1988, s343(3) for the accumulated unrelieved losses of the aeroplane engine division.
The Special Commissioners rejected the claim on the grounds that the relative scale of the two newly-formed companies indicated that the trade of the state-owned company was different from that of the new Rolls-Royce subsidiary. The decision was upheld by the Chancery Division who observed that the aeroplane engine division was now carried on by the state-owned company and all other things being equal, it would have been that company only which would be allowed to relieve the losses in this manner.