Debt dumping

Tax Glossary Definition

Debt dumping

Debt Dumping – Debt dumping is the practice by which a financially distressed company transfers its liabilities or debts to another entity—often a subsidiary or affiliated firm—to reduce its apparent financial strain or avoid insolvency proceedings.

Example: A holding company may move substantial debts to a newly created subsidiary to improve its own balance sheet position, which can negatively impact the rights of creditors.

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