Tax in Debt Restructuring

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February 16, 2015
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Tax in Debt Restructuring

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Bombora

February 16, 2015
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  1. 1.

    Tax in debt t t i restructuring Presenters: > Emma

    Riddle CMS Cameron McKenna LLP > Dipesh Santilale CMS Cameron McKenna LLP > Sam Dames CMS Cameron McKenna LLP
  2. 2.

    Overview 1. Releases and deemed releases 2 W i d

    l f l di t ib ti 2. Waivers and unlawful distributions 3. Debt for equity swaps 4. Holding equity medium/long term: Commercial issues 5. HMRC Consultation: Potential impact
  3. 3.

    1 Releases and deemed releases 1 ► Introduction to Loan

    Relationships ► Tax charge on release ► Group exception ► Group exception ► Other exceptions ► Deemed releases
  4. 4.

    D d l C t d 1 Releases and deemed

    releases Deemed release: Case study BANK 1 BANK 2 BANK 3 DEBTOR PURCHASER Debt £60m Business £50m PURCHASER • Debtor company has already been in financial difficulties ; is now owned by a consortium of Banks, none of which control it Debtor’s b siness is orth £50m Banks ha e fo nd a potential P rchaser at • Debtor’s business is worth £50m ; Banks have found a potential Purchaser at this value • Banks are owed £60m by Debtor • Option 1 - Banks waive £10m of debt. Purchaser buys Debtor for £1 and procures repayment of outstanding £50m of Bank debt. • Option 2 – Purchaser buys shares and debt owed to the Banks for £50m
  5. 5.

    1 Waivers and unlawful distributions ► Rules on maintenance of

    capital 1 ► Valuation of intercompany loans: Distressed vs. non-distressed situations ► Group relief on intercompany waivers of loans
  6. 6.

    1 C St d Waivers and unlawful distributions 1 

    Insolvent group with no documented intercompany loans and only net balances known for each company: Case Study and only net balances known for each company: individual loan relationships cannot be identified  Not all group companies insolvent  Sale of half of group and requirement to clean up intercompany loan positions through waiver to facilitate sale Is it possible lawfully to waive the intercompany debts? debts?
  7. 7.

    1 Debt for Equity Swaps 1 ► Exemption from bringing

    a credit into account ► What is an ordinary share? ► One or two shares? ► One or two shares? ► Entitlement to shares ► Subsequent disposal
  8. 8.

    1 Debt for Equity Swaps Di i t i 1

    Discussion topic What economic rights should attach to the share(s)? ( )
  9. 9.

    1 Holding equity medium/long term: Commercial issues for lenders ►

    Strategy and how much debt to convert? Commercial issues for lenders ► Accounting/Regulatory impact of holding equity C titi /P i i ► Competition/Pensions issues ► Board representation and conflicts for lenders ► General approach on usual shareholder and equity terms y
  10. 10.

    2 HMRC Consultation and potential impact Fi l Di i

    potential impact Final Discussion –
  11. 12.
  12. 13.

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