Section 362A | Corporate rescue: debt released shortly after connection arises ^F1

(1)This section applies if—

(a)the case is one in which section 362 would otherwise apply,

(b)within 60 days after C and D become connected, C releases D's liability to pay an amount under the loan relationship, and

(c)the corporate rescue conditions are met.

(2)If the release is of the whole debt, section 362 does not apply by reason of C and D becoming connected.

(3)If the release is of part of the debt, the amount that C is treated by section 362 as having released when it became connected with D is reduced (but not below nil) by the amount actually released.

(4)The corporate rescue conditions are—

(a)that C and D became connected as a result of an arm's length transaction, and

(b)that immediately before C and D became connected it was reasonable to assume that, without the connection and any arrangements of which the connection forms part, there would be a material risk that at some time within the next 12 months D would have been unable to pay its debts.

(5)For the purposes of subsection (4)(b), a company is unable to pay its debts if—

(a)it is unable to pay its debts as they fall due, or

(b)the value of the company's assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities.