We discuss below changes to UK tax law in respect of corporate
debt which take effect from the beginning of this year which will
improve the UK tax position for distressed debt of a UK
company.
Background
Currently, if a UK company is released from a debt owed to an
unconnected creditor, the default position is that this will be a
taxable event for the debtor company and its accounts will
recognise a (taxable) credit in respect of this release. Further,
where a debt that was previously held by an unconnected party to
the debtor company becomes "connected" a
"deemed" release of debt may arise, which may give rise
to the same issues (although there is a limited exception where
debt becomes connected as part of a corporate rescue). In addition,
if an "amend and extend" restructuring of debt is
undertaken and this gives rise to a "substantial
modification" or a reduction in the net present value of the
cashflows arising under the relevant loan by at least 10 per
