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Corporation Tax Act 2009

Changes over time for: Cross Heading: Deemed debt releases on impaired debts becoming held by connected company

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Deemed debt releases on impaired debts becoming held by connected companyU.K.

361Acquisition of creditor rights by connected company at undervalueU.K.

(1)This section applies if—

(a)a company (“D”) is a party to a loan relationship as debtor,

(b)another company (“C”) becomes a party to it as creditor,

(c)immediately after it does so C and D are connected,

(d)in a case where the person from whom C acquires its rights under the loan relationship is a company, in the period of account in which C acquires them there is no connection between C and that company,

(e)the amount or value of any consideration given by C for the acquisition is less than the pre-acquisition carrying value (see subsection (5)), and

[F1(f)no relevant exception applies.]

[F2(2)In subsection (1) “relevant exception” means—

(a)the corporate rescue exception (see section 361A),

(b)the debt-for-debt exception (see section 361B), or

(c)the equity-for-debt exception (see section 361C).]

(3)C is treated as releasing its rights under the loan relationship when it acquires them.

(4)The amount treated as released is the amount of the difference referred to in subsection (1)(e).

(5)In subsection (1)(e) “the pre-acquisition carrying value” means the amount which would be the carrying value of the liability under the loan relationship in D's accounts if a period of account had ended immediately before C became a party to it.

(6)For the purposes of subsection (5) the carrying value is determined taking no account of—

(a)accrued amounts, or

(b)amounts paid or received in advance.

Textual Amendments

F1S. 361(1)(f) substituted (with effect in accordance with Sch. 15 para. 3(2) of the amending Act) by Finance Act 2010 (c. 13), Sch. 15 para. 2(4)(a) (with Sch. 15 para. 4)

F2S. 361(2) substituted (with effect in accordance with Sch. 15 para. 3(2) of the amending Act) by Finance Act 2010 (c. 13), Sch. 15 para. 2(4)(b) (with Sch. 15 para. 4)

Modifications etc. (not altering text)

C1Pt. 5 modified (with effect in accordance with s. 148 of the amending Act) by Finance Act 2012 (c. 14), s. 88(1)(2)(7) (with s. 147, Sch. 17)

C2S. 361(1)(a)-(c) modified (17.7.2012) by Finance Act 2012 (c. 14), s. 23(8)-(12)

[F3361AThe corporate rescue exceptionU.K.

(1)For the purposes of section 361, the “corporate rescue exception” applies if—

(a)the acquisition is an arm's length transaction,

(b)there has been a change in the ownership of D at any time in the period beginning one year before, and ending 60 days after, the date of the acquisition,

(c)it is reasonable to assume that, but for the change in ownership, D would, within one year of the date of the change of ownership, have met one of the insolvency conditions, and

(d)it is reasonable to assume that, but for the change in ownership, the acquisition would not have been made.

(2)Subject to subsection (3), section 769 of ICTA (rules for ascertaining change in ownership of company) applies for the purpose of construing a reference in this section to a change in the ownership of a company.

(3)A reference in this section to a change in the ownership of a company, in the case of a company that is a building society, is a reference to—

(a)an amalgamation of two or more building societies under section 93 of the Building Societies Act 1986,

(b)a transfer of all the engagements of one building society to another under section 94 of that Act, or

(c)a transfer of the whole of the business of a building society to a company under section 97 of that Act.

(4)Sections 322(6) and 323 (insolvency conditions) apply for the purposes of this section.

Textual Amendments

F3Ss. 361A-361C inserted (with effect in accordance with Sch. 15 para. 3(2) of the amending Act) by Finance Act 2010 (c. 13), Sch. 15 para. 2(5) (with Sch. 15 para. 4)

361BThe debt-for-debt exceptionU.K.

(1)For the purposes of section 361, the “debt-for-debt exception” applies if condition 1 or 2 is met.

(2)Condition 1 is that—

(a)the acquisition is an arm's length transaction,

(b)the rights that are acquired are rights under a loan relationship that is represented by a security (“the old security”),

(c)the consideration given by C for the acquisition consists only of a security (“the new security”) representing a loan relationship to which C is a party as debtor, and

(d)the new security—

(i)has the same nominal value as the old security, and

(ii)at the time of the acquisition, has substantially the same market value as the old security.

(3)Condition 2 is that—

(a)the acquisition is an arm's length transaction,

(b)the rights that are acquired are rights under a loan relationship that is represented by an asset other than a security (“the old unsecured loan”),

(c)the consideration given by C for the acquisition consists only of an asset other than a security (“the new unsecured loan”) representing a loan relationship to which C is a party as debtor, and

(d)the amount of the new unsecured loan, and its terms, are substantially the same as those of the old unsecured loan.

(4)In this section “market value” has the same meaning as in TCGA 1992 (see sections 272 and 273 of that Act).

(5)In determining for the purposes of this section the market value of a security in a case in which the security represents a loan relationship to which section 415 (loan relationships with embedded derivatives) applies, rights or liabilities within subsection (1)(b) of that section are to be treated as comprised in the loan relationship.

Textual Amendments

F3Ss. 361A-361C inserted (with effect in accordance with Sch. 15 para. 3(2) of the amending Act) by Finance Act 2010 (c. 13), Sch. 15 para. 2(5) (with Sch. 15 para. 4)

361CThe equity-for-debt exceptionU.K.

(1)For the purposes of section 361 the “equity-for-debt exception” applies if the following two conditions are met.

(2)The first condition is that the acquisition is an arm's length transaction.

(3)The second condition is that the consideration given by C for the acquisition consists only of—

(a)shares forming part of the ordinary share capital of C,

(b)shares forming part of the ordinary share capital of a company connected with C, or

(c)an entitlement to shares within paragraph (a) or (b).]

Textual Amendments

F3Ss. 361A-361C inserted (with effect in accordance with Sch. 15 para. 3(2) of the amending Act) by Finance Act 2010 (c. 13), Sch. 15 para. 2(5) (with Sch. 15 para. 4)

362Parties becoming connected where creditor's rights subject to impairment adjustment [F4etc] U.K.

(1)This section applies if—

(a)a company (“D”) is a party to a loan relationship as debtor, [F5and]

(b)another company (“C”) which—

(i)is a party to the loan relationship as creditor, and

(ii)is not connected with D,

becomes connected with D, F6...

F7(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2)C is treated as releasing its rights under the loan relationship when C and D become connected.

[F8(3)The amount treated as released is the amount (if any) by which the pre-connection carrying value in D's accounts exceeds the pre-connection carrying value in C's accounts.

(4)In subsection (3)—

  • the pre-connection carrying value in D's accounts” means the amount that would be the carrying value of the liability representing the loan relationship in D's accounts if a period of account had ended immediately before C and D became connected, and

  • the pre-connection carrying value in C's accounts” means—

    (a)

    in any case where C was a party to the loan relationship as creditor on the last day of the period of account ending immediately before the one in which C and D became connected, the cost of the asset representing the loan relationship which would be given on that day on an amortised cost basis of accounting, and

    (b)

    in any other case, the amount or value of any consideration given by C for the acquisition of the asset representing the loan relationship.]

(5)For the purposes of subsection (4) [F9no account is to be taken of—]

(a)accrued amounts, [F10or]

(b)amounts paid or received in advance, F11...

F11(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F4Word in s. 362 heading inserted (with effect in accordance with s. 23(4) of the amending Act) by Finance Act 2012 (c. 14), s. 23(2)(d)

F5Word in s. 362(1)(a) inserted (with effect in accordance with s. 23(4) of the amending Act) by virtue of Finance Act 2012 (c. 14), s. 23(2)(a)(ii)

F6Word in s. 362(1)(b) omitted (with effect in accordance with s. 23(4) of the amending Act) by virtue of Finance Act 2012 (c. 14), s. 23(2)(a)(ii)

F7S. 362(1)(c) omitted (with effect in accordance with s. 23(4) of the amending Act) by virtue of Finance Act 2012 (c. 14), s. 23(2)(a)(i)

F8S. 362(3)(4) substituted (with effect in accordance with s. 23(4) of the amending Act) by Finance Act 2012 (c. 14), s. 23(2)(b)

F9Words in s. 362(5) substituted (with effect in accordance with s. 23(4) of the amending Act) by Finance Act 2012 (c. 14), s. 23(2)(c)(i)

F10Words in s. 362(5)(a) inserted (with effect in accordance with s. 23(4) of the amending Act) by Finance Act 2012 (c. 14), s. 23(2)(c)(ii)

F11S. 362(5)(c) and the word immediately preceding it omitted (with effect in accordance with s. 23(4) of the amending Act) by virtue of Finance Act 2012 (c. 14), s. 23(2)(c)(iii)

363Companies connected for sections 361 [F12to] 362U.K.

(1)For the purposes of sections 361 [F13to] 362 there is a connection between two companies at any time if condition A or B is met at that time.

(2)Condition A is that one company has control of the other.

(3)Condition B is that both companies are under the control of the same person (but see subsection (6)).

(4)For the purposes of sections 361 [F14to] 362 there is a connection between two companies in a period of account if there is a connection between them (within subsection (1)) at any time in the period.

(5)Section 472 (meaning of “control”) applies for the purposes of this section.

(6)Condition B is not taken to be met just because two companies have been under the control of—

(a)the Crown,

(b)a Minister of the Crown,

(c)a government department,

(d)a Northern Ireland department,

(e)a foreign sovereign power, or

(f)an international organisation.

(7)Section 468 (connection between companies to be ignored in some circumstances) applies for the purposes of this section as it applies for the purposes of the provisions which apply section 466, taking references in sections 468 and 469 to the accounting period as references to the period of account.

(8)For the meaning of “international organisation”, see section 476(2) and (3).

Textual Amendments

F12Word in s. 363 heading substituted (with effect in accordance with Sch. 15 para. 3(2) of the amending Act) by Finance Act 2010 (c. 13), Sch. 15 para. 2(6)(a) (with Sch. 15 para. 4)

F13Word in s. 363(1) substituted (with effect in accordance with Sch. 15 para. 3(2) of the amending Act) by Finance Act 2010 (c. 13), Sch. 15 para. 2(6)(b) (with Sch. 15 para. 4)

F14Word in s. 363(4) substituted (with effect in accordance with Sch. 15 para. 3(2) of the amending Act) by Finance Act 2010 (c. 13), Sch. 15 para. 2(6)(b) (with Sch. 15 para. 4)

Modifications etc. (not altering text)

C3S. 363 applied (17.7.2012) by Finance Act 2012 (c. 14), s. 23(4)(b)

[F15363AArrangements for avoiding section 361 or 362U.K.

(1)This section applies in any case where arrangements are entered into and the main purpose, or one of the main purposes, of any party in entering into them (or any part of them) is—

(a)to avoid an amount being treated as released under section 361 or 362, or

(b)to reduce the amount which is treated as released under section 361 or 362.

(2)The arrangements (or part of the arrangements) are not to achieve that effect (so that an amount, or a greater amount, falls to be treated as released under section 361 or 362).

(3)In this section “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).]

Textual Amendments

F15S. 363A inserted (with effect in accordance with s. 23(5)-(7) of the amending Act) by Finance Act 2012 (c. 14), s. 23(3)

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