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Debt for equity swap definition What does Debt for equity swap mean? In restructuring practice, a debt for equity swap is a transaction in which creditors agree that some or all of their secured or unsecured debt claims are released or compromised in exchange for shares or other equity interests in the company being restructured (or a newco). The term is descriptive and widely used across corporate restructuring and insolvency contexts; it is not a defined statutory term. Across England & Wales, Scotland and Northern Ireland, swaps are commonly implemented consensually or via a Companies Act 2006 scheme of arrangement or a Part 26A restructuring plan (which can use cross-class...
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Debt-for-equity swaps: eligibility, valuation and implementation via consensual deals, schemes, Part 26A plans, CVAs and enforcement; documentation, tax reliefs, effects and risks
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Practice notes
Debt for equity swap
A widely used restructuring approach is a debt for equity swap; financial creditors take shares in the reorganised corporate vehicle in return for reducing or writing off their debt claims against the company (and the remainder of the group). Many highly leveraged transactions have slender Equity buffers and existing shareholders frequently end up ‘Out of the money’. A debt for equity swap cuts balance sheet Liabilities and lets lenders share in more of the upside after a restructuring when the business returns to profit (as equity holders, entitled to dividends once there are adequate distributable reserves) or on any subsequent sale. The valuation will indicate where the value breaks; that tranche will expect to receive the greatest equity allocation post‑restructuring (see Practice Note: Where the value breaks and negotiating strength). The corporate rescue exemption in section 322(5E) of the Corporation Tax Act 2009 (CTA 2009) may lessen the attractiveness of the debt to equity swap as a restructuring tool. The debt to equity swap was often adopted to take advantage of an exemption in CTA 2009, which permitted the release of debt in exchange for shares without creating a tax charge for the company...
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Web page updated on 21/05/2026
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