While much of the focus of the insolvency and restructuring world has (rightly and understandably) been on the fundamental changes introduced under the Corporate Insolvency and Governance Act 2020, it is worth remembering that there have been major tax changes, too.

In a move that will be greeted with a small sigh of relief by individuals, businesses and insolvency practitioners affected by the coronavirus pandemic (COVID-19), HM Revenue and Customs (HMRC) has published new guidance on its approach to insolvency procedures.

The guidance covers:

The recent case of Farnborough Airport Properties Company and another v HMRC is noteworthy for the light it shines on the dimly lit and often difficult interaction between tax law and insolvency.

The issues

Debt exchanges have long been utilized by distressed companies to address liquidity concerns and to take advantage of beneficial market conditions. A company saddled with burdensome debt obligations, for example, may seek to exchange existing notes for new notes with the same outstanding principal but with borrower-favorable terms, like delayed payment or extended maturation dates (a "Face Value Exchange"). Or the company might seek to exchange existing notes for new notes with a lower face amount, motivated by discounted trading values for the existing notes (a "Fair Value Exchange").

One of the primary fights underlying assumption of an unexpired lease or executory contract has long been over whether any debtor breaches under the agreement are “curable.” Before the 2005 amendments to the Bankruptcy Code, courts were split over whether historic nonmonetary breaches (such as a failure to maintain cash reserves or prescribed hours of operation) undermined a debtor’s ability to assume the lease or contract.