An operating business was being sold by a private equity fund to a US corporate buyer and the target business had breached banking covenants and was distressed.

The buyer wished to purchase a business with a repaired balance sheet and proposed a pre-sale restructuring, to separate the operating part of the business from the property-owning part. In formalising these proposals, the buyer identified a risk that there could be a charge to corporation tax in respect of the proposed pre-sale debt tidy up. The seller did not wish to give a long indemnity for the risk as it was about to appoint a liquidator to close down the structure.

The risk of a corporation tax charge being triggered by a waiver of debt, to be given as part of the pre-sale debt tidyup, was assessed as low, but the quantum of the potential charge (over £100m if the assessment proved incorrect) was severe that the buyer was unable to buy the assets without insurance for the risk.

We worked collaboratively with both the buyer and the seller and their advisors to cover the risk and we led a tower of insurance. This issue became a deal-breaker but the insurance provided the solution on a challenging transaction where the business could have become insolvent if the sale did not go through.