The acquisition, disposal, restructuring or release of distressed debt (sometimes called non-performing loans, or NPLs) can give rise to a number of tax issues for both the lender (creditor) and the borrower (debtor).
This distressed debt subtopic looks at the key tax considerations associated with:
acquisitions of non-performing loans
debt restructurings, and
enforcement of debts
In addition, Checklist: Tax and distressed debt—points to consider lists the key points to consider when dealing with distressed debt.
Certain economic climates can mean distressed debt portfolios changing hands. In such climates, banks typically seek to reduce their balance sheet exposure to struggling businesses or individuals, while private equity and other funds see opportunities to make a profit from the purchase and subsequent realisation or repayment of the debt in distressed portfolios. The tax issues which should be considered where a portfolio of distressed debt is being acquired are discussed in more detail in Practice Note: Tax and distressed debt—acquisitions of non-performing loans.
Key considerations for a potential purchaser of distressed debt will include the type of acquisition vehicle
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