Debt Reduction

deleveraging

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Updated debt reduction regulations

Debt relief regulations included in 19 EStG, 1962 (the "Act") and 12A of the 8th List of the Act were modified with effect from 1 January 2018 and shall be effective for years of investment beginning on or after that date. Except for the exemptions provided for in section 19(8) and section 12A(6), the debt reduction rules shall when::

A " debt advantage " is created in relation to an amount of debt due by a debtor; the emphasis of this debate is on the concepts of " debt advantage " and " debt relief or compensation " which have been established with the recent amendments to § 19 and § 12A. Consession or compromise" is described in section 19(1)(a) and section 12A(1)(a) as any agreement under which: a requirement relating to a debt is amended or cancelled; accordingly, when the conditions of a debt are amended or an undertaking is replaced or amended, it should be examined whether the other conditions of the debt reduction rules are satisfied.

A further frequent and now potentially applicable debt relief scheme is that a believer buys an interest in a borrower's entity and the creditor's commitment to pay the purchase consideration is offset against the debtor's commitment to pay the debt, thereby settling a debt by an entity for set-off.

However, this is based on the assumption that the debt would be paid by using the share capital revenue generated by the Umbrella Fund in accordance with subparagraph (b) of the proposed provision of the definitions of a " franchise or trade-off ". Consideration should then be given to whether such a licence or debt trade-off creates a 'debt advantage'.

"Debtor benefit" in relation to a debt due by one party to another party means, for the purpose of Section 19 and subsection 12A, any amount by which the face value of the debt receivable by that other party in relation to that debt before the conclusion of an agreement in relation to that debt by that other party exceeds: in the case of an agreement described in subsection (a) of the definitions of "concession or compromise", the fair value of the debt receivable in relation to that debt; in the case of an agreement described in subsection (b) of the definitions of "concession or compromise":

In simple parlance, a debt advantage arises when the nominal value of the debt before the "concession or compromise" is greater than the fair value of the receivable in relation to the debt or the equity purchased under the "concession or composition". Within the framework of a licence or a trade-off within a group, the debt relief arrangements under section 19(8)(e) and section 12(6) may be ruled out.

Regarding this disclaimer, the debt relief rules do not cover debt service in relation to debt due by one individual to another if the individual who is indebted to the mountain of debt is an entity that: directly or indirectly decreases or settles the debt through the issuance of equity by that indebted entity.

These exclusions shall not, however, extend to debts entered into or taken over by such entity (the debt-forming entity) for the purpose of directly or indirectly settling, taking over, refinancing or renewing debts of another entity which 1) did not belong to the same group of undertakings at the date on which such other entity entered into such debts, or 2) did not belong to the same group of undertakings at the date on which such entity (the debt-forming entity) reduced or settled such debts by means of securities it issues.

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