CFM35595 - Loan relationships: connected companies and impairment: debtors: deemed releases of impaired debt: anti-avoidance rule: examples

C Ltd has previously issued loan notes into the market, which are now trading at their fair market value of 80% of par. CA Ltd, a company in the same group, offers to acquire these notes in exchange for shares of P Plc, the parent company of C Ltd and CA Ltd. £80 of shares are offered for each £100 of notes exchanged, using a standard market formula to determine the share price. The shares are issued directly by P Plc, with an arm’s length fee paid by CA Ltd to P Plc to secure the issue of the shares.

CTA09/S361C provides an ‘equity-for-debt’ exception from the deemed release rule in CTA09/S361 in such cases (CFM35560). These are normal arrangements under which a debt-equity swap is made and do not constitute arrangements for the purposes of CTA09/S363A.