When a company is on the brink of entering into insolvency proceedings the tax impact, understandably, may not be at the forefront of everyone’s mind and so may be overlooked. However, entry into liquidation or administration or the appointment of a receiver can have an adverse impact on, and sever, UK tax groups. This can result in (unexpected) tax leakage and further depletion of assets, adding greater pressure to the distressed situation.

HMRC has recently updated its published guidance on the effect of insolvency on existing VAT groups following appointment of an insolvency practitioner.

The updated guidance

The updated guidance provides that:

In Czyzewski v. Sun Capital Partners, Inc.1, the United States District Court for the District of Delaware affirmed a Bankruptcy Court determination that a private equity firm was not liable for its subsidiary portfolio company’s failure to provide adequate notice of a plant closing under the federal Worker Adjustment and Retraining Notification Act (WARN Act).