On 1 March 2021, Brazos Electric Power Cooperative, Inc. (“Brazos”) commenced a chapter 11 bankruptcy case in the United States Bankruptcy Court for the Southern District of Texas. Brazos is a Texas-based non-profit electric cooperative corporation that provides wholesale electricity to its members, which, in turn, provide retail electricity to Texas consumers.
With an increased number of businesses experiencing financial difficulties in the current economic climate, lender-led debt restructurings are becoming more prevalent. Such restructurings are commonly achieved by the lender releasing, capitalising or amending its debt, each of which will have tax consequences for the borrower group.
This note sets out a brief summary of some of the key UK tax points to be aware of, and pitfalls to avoid, when undertaking these debt restructurings.
Debt waivers
The long-anticipated wave of civil enforcement actions involving participants in the Paycheck Protection Program (PPP) has begun.
A comprehensive change to German insolvency and restructuring law has become effective starting 1 January 2021. The change allows that a company's reorganization is possible without insolvency and includes the majority decision of its creditors.
The government has once again suspended wrongful trading, this time until 30 April 2020. The government had previously suspended wrongful trading for the period between 1 March 2020 and 30 September 2020. To the surprise of many commentators in the insolvency profession the government let the first suspension lapse at the end of September. Perhaps because of the "second wave" of Covid-19 the government has seen it fit to revive the suspension.
The Federal Court has today sensibly ruled that security interests do not vest in the company grantor simply because the company had at some time previously been in liquidation, administration or subject to a deed of company arrangement (DOCA). This decision should come as a great relief to secured lenders and suppliers to companies that have successfully passed through a restructuring and have resumed "business as usual".
Executive summary
On a UK company’s insolvency, the UK tax authority (HMRC) will become a preferential creditor in respect of certain unpaid taxes (Crown Preference) with effect from 1 December 2020. Despite lobbying against the move (including in light of the COVID-19 pandemic), the UK government has persisted with the change, perhaps in an attempt to shore up its tax take.
The reform in context
What is the Cape Town Convention?