Corporation Tax Act 2009 section 361D

Corporate rescue: debt released shortly after acquisition

Section 361D provides a corporate rescue exemption that reduces or eliminates the taxable credit otherwise imposed on a debtor company under section 361 when a connected company acquires an impaired debt at undervalue and then releases part or all of the debt shortly afterwards.

• Where a connected creditor (or a company connected with it) releases all or part of the debtor's liability within 60 days of acquiring the debt, the deemed release credit under section 361 is reduced or disapplied entirely
• If the entire debt is released, section 361 does not apply at all to the acquisition; if only part is released, the deemed release amount under section 361 is reduced by the amount actually released (but not below nil)
• The exemption is only available where the acquisition was on arm's length terms and, immediately before the connected creditor acquired the debt, there was a material risk that the debtor company would be unable to pay its debts within the next 12 months
• Inability to pay debts means either being unable to meet debts as they fall due, or having assets worth less than total liabilities including contingent and prospective liabilities