Debt restructurings—tax issues on acquisitions of distressed debt
Produced in partnership with Jenny Doak of Weil Gotshal & Manges
Debt restructurings—tax issues on acquisitions of distressed debt

The following Tax guidance note Produced in partnership with Jenny Doak of Weil Gotshal & Manges provides comprehensive and up to date legal information covering:

  • Debt restructurings—tax issues on acquisitions of distressed debt
  • Choosing an acquisition vehicle
  • Using a UK corporate vehicle
  • Using an offshore vehicle
  • Using a transparent entity
  • Funding the acquisition of distressed assets
  • Acquisition of NPLs—transaction costs

The economic climate can lead to instances of distressed debt portfolios changing hands. In such a climate, typically banks seek to reduce their balance sheet exposure to struggling businesses or individuals, while private equity and other funds see opportunities to make a profit from the purchase and subsequent realisation or repayment of the debt in distressed portfolios.

This Practice Note outlines the tax issues which should be considered where a portfolio of distressed debt is acquired. In this Practice Note, distressed debt is referred to as non-performing loans (NPLs). Example of NPLs could include, for example, residential mortgage loans or corporate debt.

Other Practice Notes in this series cover the tax issues relating more specifically to:

  1. tax issues on debt restructurings

  2. the enforcement of debts

In addition, a checklist summarises the key points to consider when dealing with distressed debt.

For a closer look at the technical provisions dealing with debt releases in the loan relationships legislation, see Practice Notes: Impairment losses and debt releases and Impairment and debt releases—connected companies.

This Practice Note assumes that:

  1. borrowers under NPLs are UK resident, and

  2. interest due on NPLs has a UK source

However in all cases where NPLs have a connection with a jurisdiction other than the UK (such as the location of the borrower, the security or the governing law), the tax position in that other jurisdiction