Restructuring and Corporate Reorganisations
Companies and groups of companies for many varied reasons may need or desire to go through some form of re-organisation. Some of the examples of this might include:
- Preparation for sale of the business or of a distinct area of the business;
- Succession planning for the next generation – in anticipation of retirement;
- To facilitate a management buy-out;
- To allow the group to have a qualifying employee benefit scheme;
- Demerging/splitting different trading groups;
- Shareholder/directors deciding to go their own way.
Once the commercial end result has been decided upon, the way that any form of reorganisation or restructuring it achieved needs careful company law and tax planning consideration.
Group reorganisations may simply mean moving assets around the group, or moving a subsidiary company’s positioned within the group, or possibly a transfer or reorganisation of debt. Again, undertaking group reorganisations may be for various reasons ranging from:
- Saving costs on administration - for example getting rid of intermediate holding companies and dormant subsidiaries.
- Preparation for an acquisition or sale or to amalgamate cost centres (if for instance there is a proposed sale of part of the business).
- Tax efficiencies.
- Compliance considerations.
- Reorganising the group perhaps after the acquisition of a new business.
- Asset protection
Removing companies or certain assets from an existing company or group - whether for…
- strategic commercial reasons or
- in preparation for a succession plan or as part of a succession plan or
- perhaps because the shareholder/directors each run a distinct part of business, their plans do not align and they want to split the group and take part of the business each,
…will involve a demerger of some description.
To ensure that they can achieve this lawfully, with minimal tax and stamp duty impact involves very careful planning. There are a number of routes to consider including:
- Statutory demerger
- 3 cornered demerger;
- Demerger by way of S110 liquidation;
- Demerger by way of reduction of capital.
Choosing the correct route to get the right end result must take into account all the tax and stamp duty considerations, as well as the company law requirements and restrictions but in particular the careful and detailed understanding of what the parties wish to achieve. It has to start with the end in mind. It is why it is vitally important that there is a clear and complete understanding of the company’s plans in the short and medium term - and with an eye to its long term objectives and of the plans of the individuals.
Demerger by way of a Section 110 liquidation
This type of demerger involves a company being liquidated to allow the liquidator on a solvent basis to distribute company assets or a subsidiary’s shares to the shareholder (or new companies formed by them).
Any restructuring or corporate reorganisation whether a demerger, group reorganisation or restructuring may also involve further considerations such as:
- Agreement of the existing bank and other funders particularly if there are already registered charges over any of the assets that we are hoping to move around the group - or in the case of a demerger, if the borrowing is being assumed by one group (or indeed if the borrowing is being split).
- Any minority shareholders in the group whose consent may be needed, or whose expectations need managing
- In family companies - whether there is an impact on the existing Wills, Trust or inheritance tax planning of the individual clients.
- Whether there are existing employee share schemes that need to be rolled into the existing structure.
- What public filing (primarily at Companies House) will be undertaken, and how this and any credit score (as a result of the reorganisation) may affect the trading of the business (if at all).
- Timing is also a consideration depending on year ends, tax year end impacts and on group accounting.
Restructuring and corporate reorganisations need to be undertaken exactly in accordance with the relevant statutory provisions that achieve the tax planning objectives and obtain the necessary stamp duty reliefs (where applicable). The work must also exactly accord with the tax advisor’s tax clearances (in most cases prior to doing any such reorganisation or demerger your tax advisors will apply to HMRC for a clearance to ensure that we are confident that intended tax treatment is accepted by them if the relevant stages are undertaken in accordance with the clearance application). It is therefore vitally important that legal and other advisors work closely together to achieve that end result.
If any of the restructuring is being done in anticipation of a sale, third party investment or fund raising or joint venture, or some other form of commercial transaction involving a third party, it is also really important to ensure that the end result comes up to scrutiny from any legal or due diligence team looking at it in preparation for that event
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