Tax considerations for funds investing in distressed debt

Throughout the covid-19 pandemic we have seen increased levels of corporate borrowing and indebtedness across the world. In many countries lending has been provided directly by governments formally underwritten by governments (in the form of guarantees or insurance) or supported indirectly by government financial assistance to individuals and businesses in the wider economy. In the UK for example the government provided private-sector firms with financial support measures worth over £200bn during the pandemic aggregate corporate debt increased by £79bn to £1.4 trillion between December 2019 and March 2021 and the country’s corporate debt-to-earnings ratio rose from 322% to 349% over the same period (Financial stability in focus: The corporate sector and...