Foundational recovery strategies to generate value and enable agility
Three key considerations for tax and legal leaders
Tax and legal leaders have an essential role in helping their companies to manage and mitigate debt and protect the corporation’s value as they navigate the economic impacts resulting from the pandemic. They are at the forefront of crafting essential strategies to maintain a positive cash flow, drive the implementation of government relief measures, continue the preservation of tax attributes, manage historic issues—and if necessary, help guide any debt modification or restructuring efforts.
- Strengthen your cash position and increase liquidity
- Consider opportunities to repurchase your own debt or purchase distressed debt
- Bring tax and legal advice to any considerations of full-scale restructuring
- Act with agility and take action to drive value strategies
- Get in touch
To help you act with agility, navigate disruption, and position your businesses to recover and thrive, our M&A, tax, and legal specialists have outlined key considerations and practical steps to think about in the immediate future.
To learn more download: Positioned for recovery: Identifying strategies to generate value and act with agility
Three actionable steps you can take today
Strengthen your cash position and increase liquidity
Weigh business priorities and conduct an impact assessment on your cash positions and ability to increase liquidity. This is important to manage immediate downturn planning and to put plans in place for recovery.
- Identify and address the short-term constraints that can have detrimental impact on business continuity if not addressed.
- Explore tax payment and filings deferral opportunities, new tax reliefs, incentives, and administrative simplifications available (across all taxes) in supporting the business’ overall liquidity position without undermining trust.
- Keep current on conversations around debt modification, refinancing, or any form of restructuring.
- If debt is modified, tax professionals need to be cognizant of accounting consequences.
- Amendments to debt terms, even modest ones, to satisfy short- and long-term cash needs are likely to have major tax consequences.
Consider opportunities to repurchase your own debt or purchase distressed debt
For some companies, the pandemic may create opportunities to repurchase your own debt or for investors to take debt positions in target companies at particularly advantageous prices. While these transactions are normally at a discount to par, it’s important to be consider the right path and conduct proper due diligence to structure deals.
- Avoids cancellation of indebtedness income, whether on an actual or deemed release of debt.
- Safeguards the characterization of future payments by the borrower are respected as principal for the new lender, including that of any unwound discount.
- Manages the tax consequences of ongoing receipts of interest, sheltering this where possible and handling withholding tax exposures.
Bring tax and legal advice to any considerations of full-scale restructuring
Companies turn to full scale restructuring when the first round of steps to generate cash and manage existing debt fail. This can result in the real risk of insolvency. If and when moving into the restructuring phase, Heads of Finance, Tax, and Legal must team to thoroughly understand implications of the proposals. Restructuring is likely to require significant planning around transaction costs, risks, and potential future benefits. Avoiding cancellation of indebtedness income, maintaining tax attributes through a change of ownership, managing transaction taxes and de-grouping charges, and understanding secondary liabilities for tax on any other stakeholder are all highly relevant.
Act with agility and take action to drive value strategies
Now is the time to develop a clear, confident, and smart value strategy—with tax and legal leadership at the table. Stay the course. Bringing sound tax and legal advice will be essential to value preservation and to navigate your corporation through a period of unprecedented uncertainty.
Tax & Financial Measures in response to COVID-19
Stay informed about important tax & financial measures through timely global updates as they evolve
Track global tax and financial measures as they are introduced, adjusted, extended, or withdrawn around the world. Navigate measures easily, with a country-level view.