Peter Rayney explores the issues surrounding debt waivers between connected companies.
A large number of companies are currently seeking to clean up Covid-19 ravaged balance sheets. As part of this exercise, many businesses will eliminate inter-company debt that is unlikely to be repayable.
This article explores the main tax and commercial issues that are involved, through a practical case study (based on a very recent client scenario).
Case study: Inter-company loan ‘waiver’
Enya Holdings Ltd (Holdings) holds 100% of the issued share capital of Watermark Ltd (Watermark) and Caribbean Blue Ltd (CB).
It has been decided that CB will ‘waive’ £800,000 of the £939,900 due from its fellow 100% subsidiary, Watermark. This is illustrated as follows:
