CFM35525 | Loan relationships: connected companies and impairment: debtors: deemed releases of impaired debt: deemed releases on or after 14 October 2009: ‘release of relevant rights’: example

Debt buybacks: example

DS Ltd was a struggling company that owed £100,000 to its parent company LM Ltd. KJ Ltd was an unconnected company formed by two former managers of DS Ltd, who thought they could turn round DS Ltd’s business. KJ Ltd came to an arrangement with LM Ltd to buy from it

• the shares in DS Ltd and

• its loans to DS Ltd.

DS Ltd was then completely independent of its former parent. KJ Ltd paid £40,000 for the loans, their market value. KJ Ltd did not bring in any credits in respect of the acquired debt.

On the assumption that KJ Ltd’s acquisition of the shares and debt of DS Ltd took place before 18 November 2015, and met the conditions for the corporate rescue exception in CTA09/S361A (CFM35540), there was no ‘deemed release’ on DS Ltd of £60,000. However, if KJ Ltd then releases the entire debt from DS Ltd, there will be a ‘release of relevant rights’ of £60,000 under CTA09/S358(4) (CFM35520).