Part 7Derivative contracts
Chapter 8Further provision about chargeable gains and derivative contracts
Issuers of securities with embedded derivatives: equity instruments
665Introduction to section 666
(1)
Section 666 (allowable loss treated as accruing) applies to a company for an accounting period if each of conditions A to F is met.
(2)
Condition A is that the company is treated as a party to a relevant contract under section 585(2) (loan relationships with embedded derivatives) because of a debtor relationship of the company.
(3)
Condition B is that the division mentioned in section 585(1) (loan relationships with embedded derivatives) in the case of the debtor relationship is between—
(a)
rights and liabilities under a loan relationship, and
(b)
rights and liabilities under an equity instrument of the company.
(4)
Condition C is that the relevant contract is treated as an option by section 585(3) (contract treated as option, future or contract for differences).
(5)
Condition D is that the company pays an amount in the accounting period to the person who is a party to the debtor relationship as creditor in discharge of any obligations under that relationship.
(6)
Condition E is that at the time when the company became a party to the debtor relationship—
(a)
it was not carrying on a banking business or a business as a securities house, or
(b)
if it was carrying on such a business, it did not become a party to that relationship in the ordinary course of that business.
(7)
Condition F is that the company is not an excluded body.
(8)
In this section “option” is to be construed as if section 580(2) and (3) (meaning of “option”) were omitted.