Tax treatment in the hands of the creditor

The tax treatment of the forgiveness of debt within a group of companies depends on whether or not such forgiveness is of a “normal nature”. In order to be considered as being of a normal nature, the ‘advantage’ granted by a parent/creditor to its subsidiary/debtor must involve valid business reasons.

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.  

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

Tax treatment in the hands of the creditor

Polish tax regulations provide three major methods for obtaining a tax deduction for irrecoverable debt: waiver or forgiveness of debt, debt write-off and revaluation write-off.

In the 2011 budget speech, the Minister of Finance announced that the Government will consider exempting taxable capital gains or ordinary revenue imposed on an insolvent debtor if the debt owing by the debtor is cancelled or reduced.

Having enforceable security over all of a borrower’s assets is obviously of primary importance to a lender.  However, where a borrower occupies leased premises, ensuring the lender has quick and reliable access to the collateral is equally important, especially if the landlord proves to be unco-operative after a borrower’s default.  Although court-ordered access to a borrower’s leased premises can be sought after a borrower’s loan default, a landlord waiver obtained prior to an initial advance of a loan can bring some added certainty to the realization process outside of a bankrup

introduction

The waiver of Solicitor/Client privilege by a bankrupt company is a difficult matter and one distinct from the waiver of such privilege by an individual bankrupt. As there is nothing in the BIA that either gives or denies a trustee the right to waive solicitor/client privilege on behalf of a company,Hahaha yes with a lot of candles! the courts have had to turn to the common law for guidance on the issue.

1. Ex ParteOrders

There are a number of ethical issues facing lawyers today in bankruptcy and insolvency litigation. One of the main issues is the level of disclosure in ex parte applications, such as those for a stay of proceedings in order to file a proposal under the BIA or a plan under theCCAA.

A recent decision of the Alberta Queen’s Bench1 has raised some questions about purchase-money security interest (“PMSI”) proceeds and cross-collateralization of assets secured by these types of security interests. It has been suggested that this decision is unique and establishes that using a PMSI as collateral for other indebtedness of the debtor is dangerous. But is this decision really so radical?

Facts: