Debt/equity swaps

Debt/equity swaps

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I'm getting conflicting "expert" advice, so would appreciate advice from the "real" experts - ie here on Any Answers!

Ignoring the why's and wherefore's:

Distressed company owes bank £13m. Net assets (before debt) of £7m.

Agreement for unconnected individual to purchase the debt from the bank for £7m.

Individual agrees to release £6m of debt in exchange for ordinary shares.

I'm comfortable with the company's position - it's the CGT aspect that appears to be problematic.

In view of the company's position, assume the shares have a current MV of only £100. My understanding is that this MV is brought in as both consideration for the (part) disposal of the debt and base cost on subsequent sale of shares. So, do we not have a simple part-disposal calculation, where A is £100 and B is £7m (on the assumption that the balance of £7m is still fully recoverable). My problem is some are arguing that the £13m needs to feature in the calculation somewhere - my view is that because that is the nominal value of the debt it is irrelevant.

All comments welcome!

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