Corporation Tax Act 2009 section 361A

The corporate rescue exception

Section 361A provides a "corporate rescue exception" that prevents a taxable loan relationships credit from arising when a connected company acquires a debt owed by a struggling debtor company, provided certain conditions relating to the acquisition and a change in ownership are met.

• When a connected company buys a debt owed by another connected company to a third party, a deemed release normally triggers a taxable credit — this exception disapplies that credit in genuine corporate rescue situations.
• Four conditions must all be satisfied: the debt acquisition must be at arm's length; a change in ownership of the debtor company must have occurred in a window starting one year before and ending 60 days after the debt acquisition; and it must be reasonable to assume the debtor would have been insolvent without the ownership change and that the new creditor would not have acquired the debt without it.
• The insolvency test requires it to be reasonable to assume that, absent the change in ownership, the debtor company would have met the statutory insolvency conditions set out in the Corporation Tax Act.
• The term "change in ownership" takes its meaning from established tax legislation, with specific adaptations for building societies.