Low oil prices have opened up opportunities for investment funds and other non-bank lenders to invest in companies operating on the UK Continental Shelf. However, investors should note the potential bear traps which can arise in connection with holding a debt and/or equity stake in such companies. These include: potential non-resident capital gains tax charges for both equity and debt holders; ‘hidden’ decommissioning costs, which arise where the company has provisioned for decommissioning costs on a post-tax basis but has no capacity to benefit from any tax relief; and difficulties in preserving carry-forward losses on a sale, as well as more general UK tax issues which can apply to the restructuring of debt owed by any UK company.
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