Summary

This briefing sets out the key French corporate income tax issues in respect of debt restructurings. In summary, debtors and creditors may be faced with material tax consequences in case of a debt waiver, debt transfer, conversion of debt into equity or debt buy-back, so that such operations may require an appropriate structuring in order to mitigate potential tax issues.

Introduction  

This briefing summarises key French tax points relating to restructuring of indebtedness.  

The recent restructuring of Autodis, a French car parts company, is a perfect illustration of the positive consequences of the reform of the French bankruptcy code in effect since February 15, 2009. The combined use of the French conciliation procedure for the operating company and the French safeguard procedures for the holding companies were agreed upon between the debtor and its creditors pursuant to the first pre-pack agreement executed in France.

Background

Article L 611-4 to L 611-15 of the French Commerce Code.

Act n° 2005-845 of 26 July 2005, as completed and amended, has created a new out-of-court settlement process known under French law as “Conciliation,” replacing the former amicable settlement or “règlement amiable.”

On 25 February 2010, the Paris Court of Appeal handed down two much-anticipated decisions confirming that creditors are able to challenge the opening of safeguard proceedings and clarifying the basis upon which safeguard proceedings can be opened by a debtor.  

In July 2006, after a long and unsuccessful attempt to reach an out-of-court restructuring of the indebtedness of the Eurotunnel group of companies, the managers of the Eurotunnel group requested the opening of main insolvency proceedings for all the companies in France.

The German Insolvency Act (the Act) states that certain company "cash transactions" may be contested in insolvency proceedings only in limited circumstances. Earlier this year, the German Federal Court of Justice clarified that this "cash transaction privilege" does not apply to securities granted by a debtor company for shareholder loans.

In a recent decision, the German courts clarified the circumstances under which repayments on a loan not granted by a direct shareholder of an insolvent borrower could qualify as repayments on a shareholder loan, and therefore avoid being contested in insolvency proceedings.

Background

German legislator finally introduces tax exemption for income resulting from debt waivers in restructuring scenarios with retroactive effect.

Legal background

Germany's major legal reform aiming to facilitate group insolvencies comes into effect on April 21, 2018 (full German text). The new law allows insolvency proceedings over companies within a corporate group to be concentrated at a single German insolvency court and/or to be administered by one insolvency administrator.