Words and Phrases - "in consequence of"

a
86
b
44
c
76
d
50
e
38
f
31
g
18
h
14
i
73
j
2
k
2
l
32
m
56
n
25
o
38
p
80
q
3
r
76
s
89
t
46
u
15
v
9
w
23
y
2

Janette Pantry, Carrie Smit, "Tax Considerations in Restructuring under the Companies’ Creditors Arrangement Act", draft 2020 CTF Annual Conference paper

Summary Under
Tax Topics - Income Tax Act - Section 79 - Subsection 79(2)

Description of credit bid (pp. 11-12)

  • Under a credit bid, which allows an existing secured creditor to bid up to the full face amount of their secured debt claim as currency for the acquisition of the debtor’s assets, the secured debt may be transferred by the secured creditors to a newly-established “CreditBidCo” in consideration for equity, so that CreditBidCo then acquires the debtor’s assets (and assumes some operating liabilities), with the full amount of its secured debt claim being extinguished.

Barter exchange characterization if s. 79 inapplicable (pp. 12-13)

  • In the absence of s. 79, the better view is that CreditBidCo is paying for the assets by agreeing to dispose of its secured debt having a value equaling to the net fair market value (“FMV”) of the underlying collateral (and that such amount constitutes the sale price to the debtor, being the secured creditors’ agreement to settle their debt claims for a value equaling the same net FMV), so that the proceeds of disposition to the debtor, the tax cost of the assets to CreditBidCo, and the repayment of the secured debt for s. 80 purposes reflects the assets’ current FMV.

Whether s. 79 applies (pp. 13-16)

  • Where s. 79 applies on a credit bid, the debtor would likely have proceeds of disposition exceeding the assets’ FMV and no forgiven amount, whereas the creditor would likely have tax cost in the assets exceeding their FMV.
  • S. 79 may not apply based on the narrow meaning of "in consequence of" (see, e.g., Hallbauer) and the (Brill-based) proposition that “where property is acquired by a creditor under an agreement with the debtor for a fixed price, section 79 should not be applicable.”
  • Greater certainty on s. 79 not applying may be achieved with a three-party arrangement under which CreditBidCo would directly acquire the debtor’s assets, and in consideration it would issue its shares to the secured creditors who would agree to the extinguishment of their debt claims against the debtor.

Accessing debtor’s losses (p. 16)

  • CreditBidCo might then acquire the debtor’s shares and wind it up so as to access its tax attributes (see 2017-0711071R3 and 2005-0140981C6).
Words and Phrases
in consequence of

Hallbauer v. R., 98 DTC 6275, [1998] 3 CTC 115 (FCA)

Summary Under
Tax Topics - Income Tax Act - Section 79 - Subsection 79(2)

The transfer by the taxpayer to his sister and former wife of his interest in two buildings in consideration for a reduction in the amount he owed to them was found to be a disposition whose proceeds of disposition were determined in accordance with s. 54(h)(i) (i.e., the "sale price of property that has been sold"), rather than by para. (c) of s. 79, as it then read.

Words and Phrases
in consequence of