Section 362A — Corporation Tax Act 2009: Corporate rescue: debt released shortly after connection arises

Corporate rescue: debt released shortly after connection arises 362A 1 This section applies if—

a the case is one in which section 362 would otherwise apply, b within 60 days after C and D become connected, C releases D's liability to pay an amount under the loan relationship, and c the corporate rescue conditions are met.

2 If the release is of the whole debt, section 362 does not apply by reason of C and D becoming connected.

3 If the release is of part of the debt, the amount that C is treated by section 362 as having released when it became connected with D is reduced (but not below nil) by the amount actually released.

4 The corporate rescue conditions are—

a that C and D became connected as a result of an arm's length transaction, and b that immediately before C and D became connected it was reasonable to assume that, without the connection and any arrangements of which the connection forms part, there would be a material risk that at some time within the next 12 months D would have been unable to pay its debts.

5 For the purposes of subsection (4)(b), a company is unable to pay its debts if—

a it is unable to pay its debts as they fall due, or b the value of the company's assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities.