Reorganisations and demergers – what can go wrong?

Re-organising, re-structuring or demerging your business can solve many problems.  For example, it can open up investment opportunities, allow buyers to cherry-pick useful assets and, where there are shareholder disputes, help carve up the business and avoid court proceedings. What can go wrong is often the paperwork, approvals and order of the steps needed to achieve the desired result.

We offer specialist legal, commercial and tax advice to help you navigate corporate reorganisations and capital reduction demergers. A clear checklist can help ensure that the necessary steps, approvals and filings are dealt with in the correct order.

What can go wrong?

Based on experience, close attention should be paid to :-

• HMRC clearance applications for reorganisations - Tax is usually a central factor in how corporate reorganisations are structured. The correct clearance applications and supporting information need to be prepared carefully to help avoid unexpected tax liabilities, such as stamp duty.
• Shareholder approvals and timing - shareholder approval may be required for changes to share rights, certain transactions and capital reductions. The articles or shareholders agreements may also contain additional approval requirements. Getting the timing of these approvals wrong can delay or prevent subsequent steps.
• Filings - Reorganisations and demergers can involve multiple filings and reporting requirements. These should be prepared and submitted correctly and on time.
• Share for share agreement - A share exchange may be required when inserting a new holding company. The structure and documentation need to be considered carefully to preserve the intended tax treatment, including the position of employee shareholders and share schemes.
• Valuation - Using an inappropriate valuation when determining the shares issued by a new holding company can have unintended tax consequences.
• Intercompany loans - Existing intercompany loans and balances should be reviewed before the reorganisation to identify any potential tax consequences from transferring or writing off balances.
• Third-party and lender approvals - Existing contracts and financing arrangements should be reviewed to identify consent requirements. Failure to obtain necessary approvals can create difficulties with third parties.
• Employee share plans - If EMI options are in place, the reorganisation should be reviewed carefully to avoid unintended tax consequences or the loss of EMI tax advantages.
• Insurance - Where businesses leave an existing group structure, insurance arrangements should be reviewed to ensure appropriate cover remains in place.

If you need legal and tax advice on a proposed capital reduction demerger or corporate reorganisation, please do contact us.