BIM42740 - Specific deductions: bad & doubtful debts: debts released

Liability for trade debt released by creditor

Where a trader makes a composition with his or her creditors, the amount forgone by the creditors normally ranks as a trading receipt of the debtor under ICTA88/S94, (see BIM40201).

However, by virtue of FA94/S144, the provisions of ICTA88/S94 will not apply where any part of a debt is released on or after 30 November 1993 as part of a relevant arrangement or compromise. ’Relevant arrangement or compromise' has the same meaning as in ICTA88/S74 (2) that is:

• a voluntary arrangement under the Insolvency Act 1986 or the Insolvency (Northern Ireland) Order 1989, or
• a compromise or arrangement under Companies Act 1985, Section 425 or Companies (Northern Ireland) Order 1986/Article 418.

ICTA88/S74 (1)(j) gives relief to the creditor when a debt is released as part of a relevant arrangement or compromise.