Using CVAs to realise tax losses
Tony and colleagues established a internet retailing operation in the height of the dot.com boom involving a group of companies with presence in four European countries. Having spent ?40m of investors' money on developing systems and marketing the new concept, the money ran out and now investors were nervous of the sector. The European subsidiaries were placed into insolvency procedures in those countries and the trading assets were sold to another internet operation.
This left the non-trading parent company which was itself insolvent with its own investor creditors but had significant capital tax losses because of the failure of its subsidiaries. The group's solicitors asked us to advise the board, comprising many established City names, on the options. We successfully convinced creditors that the holding company should not be liquidated but made subject to a CVA to reduce liabilities in a way that would not create a tax charge. We duly implemented the CVA and were able to find a buyer for the empty tax shell that realised ?1m for the creditors.
The other side advantage of the CVA was that the directors who were City names could avoid the stigma of a liquidated company on their CVs
"CVAs are great for tax loss situations because unlike liquidation, the company survives and preserves them. Furthermore the Revenue allows you to reduce liabilities without creating a tax charge, unlike any other procedure"
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