CFM35450 - Loan relationships: connected companies and impairment: debtors: deemed releases of impaired debt: where impaired debt is acquired

CTA09/S361

Creditor acquires impaired debt

S361 will apply where

• a debtor company (‘D’) is party to a loan relationship
• another company (‘C’) becomes party to it as creditor
• immediately after the acquisition, the debtor company and the creditor company are connected,
• when C acquires the debt, it does so from a company with which it is unconnected
• the consideration paid by the creditor company for the debt is less than its carrying value in the debtor company’s accounts.

The application of S361 is subject to certain exceptions, see CFM35530 onwards for details.

The amount treated as released is the amount by which the consideration paid by the creditor is less that the carrying value of the loan in the debtor company’s accounts.

When making the comparison between the carrying value in the debtor’s books and the amount paid by the creditor, accrued amounts and any amounts paid or received in advance are ignored.

Transactions before 18 November 2015

The rules for deemed releases were different for transactions taking place before 18 November 2015. If you are dealing with a deemed release before this date, please refer to CFM35435.