Restructuring transactions in response to the COVID-19 crisis – Key UK tax considerations

The COVID-19 crisis is likely to impair the ability of certain UK borrower companies to make payments under their debt obligations. In response, borrower groups and their lenders may agree to restructure those obligations, perhaps by means of interest deferral or cancellation, a swapping of debt for equity in the borrower group or the borrower group’s entry into new, potentially more subordinated debt. As part of this type of debt restructuring, a borrower group may also undertake an internal reorganisation of its assets and liabilities, possibly in conjunction with a sale of particular business operations to an external purchaser. This Legal Update explains some key UK tax considerations that apply in this area. It is based on an article that the authors have recently contributed to the Tax Journal magazine, which can be viewed here.