CFM35530 | Loan relationships: connected companies and impairment: debtors: deemed releases of impaired debt: exemptions

Exemptions from deemed releases and releases of relevant rights

Excemptions from S361

CFM35450 to CFM35460 explain the application of S361. For acquisitions of impaired debt by a connected creditor, two exceptions apply.

These exceptions are:

• Section 361C – the equity-for-debt exception (CFM35560)

• Section 361D – corporate rescue exception which applies from 18 November 2015 (CFM35570)

If either of these exceptions apply, there will be no credit on the debtor company in respect of a ‘deemed release’ under S361.

For acquisitions of impaired debt before 18 November 2015, there were additional exceptions, which have now been repealed:

• Section 361A – the corporate rescue exception (CFM35540)

• Section 361B – the debt-for-debt exception (CFM35550)

Exception from S362

CFM35480 to CFM35500 explain the application of S362. Where holders of impaired debt become connected with each other there is also a corporate rescue exception at S362A. This applies for transactions from 18 November 2015.

If this exception applies, there will be no credit on the debtor company in respect of a ‘deemed release’ under S362.

See CFM35580 for further details.

If, however, the connected creditor company subsequently releases the debtor from all or part of the debt, and either the corporate rescue exception or the debt-for-debt exception (but not the equity-for-debt exception) have applied, a credit will then be imposed on the debtor company on the ‘release of relevant rights’ - the amount of the discount at which the creditor acquired the debt, less any amounts taxed on the creditor in respect of the discount (CFM35520).

Interaction of the exceptions

If a company meets the equity-for-debt exception as well as one of the other exceptions, there will be no release of relevant rights under section 358(4).