Introduction to debt equity
Much of the complexity associated with debt for equity swaps comes from the need to comply with rules governing their accounting, taxation and implementation, both on the part of the company and its lenders. In addition, the shareholdings arising from such transactions can give rise to continuing compliance and reporting obligations for the lenders, particularly if they become major shareholders in a company. The impact of these matters must be fully considered at the time the restructuring options are being evaluated.
The following technical issues are considered:
- Accounting.
- Taxation.
- Legal and regulatory.
- Mechanics of implementation.
The focus is on considering these issues from a lenders’ point of view. However, matters addressed in this chapter vary considerably between countries. Moreover, treatments can at times conflict between jurisdictions. Therefore, it is critical that the readers familiarise themselves with their local accounting, taxation and legal frameworks affecting debt for equity swaps. Also, transactions involving a company with operations in more than one country, or a lender group involving banks from different jurisdictions, may need to comply with the laws and regulations in all the jurisdictions involved.