Section 361 | Acquisition of creditor rights by connected company at undervalue

(1)This section applies if—

(a)a company (“D”) is a party to a loan relationship as debtor,

(b)another company (“C”) becomes a party to it as creditor,

(c)immediately after it does so C and D are connected,

(d)in a case where the person from whom C acquires its rights under the loan relationship is a company, in the period of account in which C acquires them there is no connection between C and that company,

(e)the amount or value of any consideration given by C for the acquisition is less than the pre-acquisition carrying value (see subsection (5)), and

(f)the equity-for-debt exception (see section 361C) does not apply.^F1

(2)Repealed^F2

(3)C is treated as releasing its rights under the loan relationship when it acquires them.

(4)The amount treated as released is the amount of the difference referred to in subsection (1)(e).

(5)In subsection (1)(e) “the pre-acquisition carrying value” means the amount which would be the carrying value of the liability under the loan relationship in D's accounts if a period of account had ended immediately before C became a party to it.

(6)For the purposes of subsection (5) the carrying value is determined taking no account of—

(a)accrued amounts, or

(b)amounts paid or received in advance.

(7)Subsections (3) and (4) are subject to section 361D (corporate rescue: debt released shortly after acquisition).^F3