Prior to completion of the transaction, one of the sellers of the UK target company had agreed to waive his shareholder debt, which was owed by Target and arose from a historic MBO.
There was some doubt whether the waiver would create a taxable credit for the target under the loan relationship rules.
There was also a concern that the waiver would indirectly increase the value of the other seller’s shares, which would create an income tax charge for the individual sellers/directors under the employment related securities rules.
As the waiver was in the context of the sale of their shares, there would also be a national insurance contribution and PAYE risk for the target. The amount of the combined risk was under £1 million, which was a sticking point in the negotiations between the sellers and the buyer.
NIX, however, were able to arrange a bespoke policy in a matter of a few days that covered the tax liabilities at stake, interest, penalties and defence costs of dealing with a challenge by HMRC.
The deal teams commented that the cover was the difference between the deal getting done.