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Edited version of private advice
Authorisation Number: 1052059052092
Date of advice: 17 November 2022
Ruling
Subject: Cancellation of equity interests
Question
Has the Chapter 11 Bankruptcy Proceedings in the United States of America resulted in the cancellation of the shares held by the Fund, such that CGT event C2 has occurred?
Answer
Yes.
We accept that the Chapter 11 Bankruptcy Proceedings resulted in the cancelation of all equity interests in Company X on the Effective Date, including the shares held by the Fund. Cancelation of the shares in Company X held by the Fund is a CGT event C2 under section 104-25 of the Income Tax Assessment Act 1997.
This ruling applies for the following:
Income year ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
The Fund has held shares in Company X from 20XX. Company X is listed in the United States of America.
As part of Chapter 11 Bankruptcy proceedings, Company X and its Affiliate Debtors filed the Joint Pre-packaged Plan of Reorganization Under Chapter 11 of the Bankruptcy Code (the Plan).
Article III of the Plan provides that on the Effective Date, all Old Parent Interests shall be cancelled, and each Holder of Old Parent Interests shall receive no recovery on account of such Old Parent Interests.
The Plan contained the following relevant definitions:
• Effective Date means the first Business Day on which the conditions specified in Article IX of the Plan have been satisfied or waived.
• Old Parent Interest means the Equity Interests in Parent, as in existence immediately prior to the Effective Date.
• Equity Interest means any Equity Security in any Debtor, including, without limitation, all issued, unissued, authorised or outstanding shares of common or preferred stock and other ownership interests.
• Parent means Company X.
The Plan was substantially consummated, and the Effective Date occurred, in the 20XX income year.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 104-25