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

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 debt restructurings
  • Role of tax in debt restructurings
  • Debt waivers (releases)
  • Debtor insolvency
  • Debt/equity swaps
  • Debt/equity swaps—practical example in context of group structure
  • Release made pursuant to stabilisation powers
  • Corporate rescue exemption
  • Connected party provisions
  • Deemed release rules
  • more

This Practice Note outlines the tax issues that should be considered when a company seeks to restructure its external debt obligations.

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

  1. acquisitions of distressed debt, and

  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.

Role of tax in debt restructurings

Companies struggling to repay external debt will often look to reduce their exposure through:

  1. seeking a debt waiver (release)

  2. swapping debt for equity, or

  3. renegotiating the terms of the debt owed

The role of a tax practitioner will be to consider whether the debt restructuring is being effected in a tax-efficient manner, with a view to:

  1. minimising tax costs that arise on the restructuring, and

  2. preserving the availability of losses going forward

One debt restructuring is rarely the same as another and a wide range of tax issues can arise in any given scenario.

This Practice Note outlines some of the tax considerations that might typically arise for debtor companies on these types of transactions.

Debt waivers (releases)

The starting point for a distressed company will usually be