Deemed debt releases on impaired debts becoming held by connected company
361Acquisition of creditor rights by connected company at undervalue
(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
(f)at least one of the conditions in subsection (2) is met.
(2)The conditions are that—
(a)the acquisition is not an arm’s length transaction, and
(b)there was a connection between C and D at any time in the period of 3 years beginning 4 years before the date of the acquisition.
(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.
362Parties becoming connected where creditor’s rights subject to impairment adjustment
(1)This section applies if—
(a)a company (“D”) is a party to a loan relationship as debtor,
(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, and
(c)the pre-connection carrying value would have been adjusted for impairment if a period of account had ended immediately before the companies became connected.
(2)C is treated as releasing its rights under the loan relationship when C and D become connected.
(3)The amount treated as released is the amount of the impairment adjustment referred to in subsection (1)(c).
(4)In subsection (1)(c) “the pre-connection carrying value” means the amount that would be the carrying value of the asset representing the loan relationship in C’s accounts if a period of account had ended immediately before the companies became connected.
(5)For the purposes of subsection (4) the carrying value is determined taking no account of—
(a)accrued amounts,
(b)amounts paid or received in advance, or
(c)impairment losses.
363Companies connected for sections 361 and 362
(1)For the purposes of sections 361 and 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 and 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).