188体育

CTA09/S322(4)

A company using an amortised cost basis of accounting for a liability (which will normally be the case) does not have to bring in a credit where a debt is released in consideration of ordinary shares in the company - referred to in this guidance as a debt/equity swap.

鈥極rdinary share capital鈥� takes its meaning from CTA10/S1119 - it is any share capital apart from fixed rate preference shares.

Debt/equity swaps are usually prompted by the debtor company encountering trading difficulties. The transaction may involve the lender becoming the majority shareholder in the business, sometimes with the intention of the shares being held over the long term in the hope that they will increase in value. This may allow the lender to recoup all or part of their loss on the debt.

Sometimes the swap will be part of a wider debt restructuring that may involve sale of the remaining debt and/or the equity stake and the issue of shares to management to incentivise future performance.

CTA09/S322(4) facilitates such debt/equity swaps by removing the additional tax charge on the debtor company that would otherwise result from the release, which would depress the value of the shares and, in effect, inflict a further financial loss on the lender.

For the exemption in CTA09/S322(4) to apply, the release of the debt must be 鈥榠n consideration of鈥� shares, or an entitlement to shares, in the debtor company. 鈥楥onsideration鈥� has its ordinary English meaning in this context, rather than being a specialised term of contract law. The question is 鈥榳hat is the bargain between the parties鈥�? Can the creditor say 鈥業 have released this debt because company X has issued these shares to me鈥�? Can the debtor say 鈥業 have issued these shares because I am being released from the debt鈥�? The answers to these questions will be a matter of fact in any particular case.

厂别别听CFM33201听for more on the value of the shares issued in exchange for the debt released.

厂别别听CFM33202听for more on the meaning of 鈥榠n consideration of鈥� shares.

厂别别听CFM33204听for more on the meaning of 鈥榚ntitlement to shares鈥�.

For releases that took place on or after 9 November 2009 there is an additional requirement that the release was not a release of 'relevant rights',听see CFM33205.

听