Finance Bill (HC Bill 57)

(b) immediately before the release, it is reasonable to assume
that, without the release and any arrangements of which the
25release forms part, there would be a material risk that at some
time within the next 12 months the company would be
unable to pay its debts.”

(5C)(a)the release is neither a deemed release, as defined by section
358(3), nor a release of relevant rights, and

(b) 30immediately before the release, it is reasonable to assume
that, without the release and any arrangements of which the
release forms part, there would be a material risk that at some
time within the next 12 months the company would be
unable to pay its debts.””

(5) 35After subsection (6) insert—

“(6A) In subsections (4) and (5B)(a), “relevant rights” has the same
meaning as in section 358.””

(6) In subsection (7), after “Section” insert “323(A1) applies for the
interpretation of subsection (5B)(b); and the rest of section”.

17 40In section 323 (meaning of expressions relating to insolvency etc.), before
subsection (1) insert—

“(A1) For the purposes of sections 322(5B) and 323A(1)(b) a company is
unable to pay its debts if—

(a) it is unable to pay its debts as they fall due, or

(b) 45the value of the company’s assets is less than the amount of
its liabilities, taking into account its contingent and
prospective liabilities.””

18 After section 323 insert—

“323A Substantial modification: cases where credits not required to be
50brought into account

(1) Subsection (2) applies if—

(a) a debtor relationship of a company is modified or replaced by
another,

(b) immediately before the modification or replacement it is
reasonable to assume that, without the modification or
5replacement and any arrangements of which the
modification or replacement forms part, there would be a
material risk that at some time within the next 12 months the
company would be unable to pay its debts, and

(c) the modification or replacement is treated for accounting
10purposes as a substantial modification of the terms of a loan
relationship of the company.

(2) The company is not required to bring into account for the purposes
of this Part a credit in respect of any change in the carrying value of
the liability representing the modified or replacement debtor
15relationship.

(3) If as a result of subsection (2) no credit was brought into account in
respect of a change in the carrying value of a liability representing a
debtor relationship, the company may not bring into account a debit
for the purposes of this Part in respect of a change in the carrying
20value of that liability, to the extent that the change represents a
reversal of the change in carrying value to which subsection (2)
applied.

(4) Section 323(A1) applies for the interpretation of subsection (1)(b).””

19 In section 324 (restriction on debts resulting from revaluation), after
25subsection (3) insert—

“(3A) Where a company has a hedging relationship between a relevant
contract (“the hedging instrument”) and the asset or liability
representing the loan relationship, this section does not prevent
credits or debits being brought into account in respect of changes in
30the fair value of the asset or liability which are attributable to any of
the risks in respect of which the hedging instrument was intended to
act as a hedge.””

20 (1) Section 328 (exchange gains and losses) is amended as follows.

(2) In subsection (1), for “section 307(3)” substitute “section 306A(1)”.

(3) 35Omit subsections (2) and (2A).

(4) For subsection (3) substitute—

“(3) But subsection (1) does not apply to an exchange gain or loss of a
company so far as it—

(a) arises as a result of the translation of the assets, liabilities,
40income and expenses of all or part of the company’s business
from the functional currency of the business, or that part of
the business, into another currency, and

(b) has been recognised as an item of other comprehensive
income.

(3A) 45In subsection (3)—

(a) the reference to the functional currency of a business or part
of a business is a reference to the currency of the primary