CFM33195 | Loan relationships the matters and computational rules: amounts not brought into account: debt releases: corporate rescue exemption: the 12 month period

This guidance is applicable to certain events that take place on or after 1 January 2015.

CTA09/S322(5B)

The exemption in CTA09/S322(5B) applies where it is reasonable to assume when the release was made that there would be a material risk that without it the company will be unable to pay its debts (CFM33193) in the following 12 months.

Insolvency practitioners emphasise the importance of a company taking pre-emptive action to avoid future problems. A company may therefore be in discussions with insolvency advisers for some time before the final rescue package is agreed. The key test is whether, within the 12 month period, there would have been a real prospect of the company being unable to pay its debts. This question is independent of the existence of discussions with insolvency practitioners or creditors, or the state of any such process.

The 12 month time limit is intended to differentiate between the immediate urgency of a corporate rescue , which will qualify for the exemption, and more general or strategic liability management exercises, which will not. It does not mean that all necessary action as part of the arrangements of which the release forms part has to take place within the next 12 months.

In a case where the reasonable assumption of there being a material risk of a company being unable to pay its debts in the 12 month period cannot be made, a credit arising on a release may still be exempt where the company undertakes a debt-for-equity swap within CTA09/S322(4).