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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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Loan relationships: connected companies and impairment: debtors: deemed releases of impaired debt: deemed releases on or after 14 October 2009: commencement and transition

Debt buybacks on or after 14 October 2009: commencement and transition

The amendments to CTA09/S358 and S361 have effect from14 October 2009 in relation to acquisitions of impaired debt made on or after that date which result in releases of relevant rights on or after that date. In effect, the previous rules in sections 358 and 361 are grandfathered where impaired debt was acquired before that date and released after it.

Transitional rules apply to acquisitions of impaired debt that did not take place before 14 October 2009, but were in train at that date, and were completed by 31 January 2010. HMRC accepts that ‘completed’ in this context includes cases where there was a binding commitment to acquire the impaired debt, even though legal title had not passed at that date.

In such cases the previous rules in sections 358 and 361 will apply provided there was an agreement entered into before 14 October 2009, and

  • there was a proposal from the new creditor to the original creditor, or vice versa, (either directly or via an intermediary) to acquire the debt;
  • there were proposals from the new creditor to acquire the debtor company’s securities, made to at least 50% of the holders of the securities (or vice versa);
  • the Financial Services Authority had given its agreement to the acquisition of the debt.

Reference to the ‘original’ and ‘new’ creditors, and persons holding a security, includes persons acting on behalf of their behalf. For example, a group member may act for a company that had not been formed when the proposals were made to acquire the debt.

The transitional rules therefore cater for a wide range of circumstances in which an agreement may have been entered into for the acquisition of the debt. These may include bilateral deals, public offerings and negotiations that are subject to confidential discussions with the regulatory authorities.