Business restructuring

Specialist legal and tax advice for corporate restructuring, reorganisation and business turnaround.

Business restructuring

Restructuring lawyers

There are numerous possible reasons for taking action to restructure a business we deal with.  Common reasons include :-

  • insolvency – downturn in business or concerns about business solvency;
  • strategic corporate restructuring – deciding to ring fence assets or create a different company structure to mitigate risk such as a group company structure;
  • tax considerations – you may be able to operate your business more tax efficiently;
  • staff restructuring – employment related restructuring where you may decide to make some staff redundant or move to a more flexible business model;
  • selling part of your business – a decision to sell only part of the business owned assets and not the entire business; or
  • financial restructuring – taking the opportunity to refinance certain borrowings or seek private equity investment.

Specialist corporate restructuring services

We are commonly instructed and deal with :

  • Debt restructure
  • Capital reduction
  • Share buybacks
  • Debt refinancing
  • Restructuring structured and leveraged finance
  • Company restructuring strategies (including company reorganisation, dilution of share capital, or de-mergers)

If you need experienced commercial and legal advice on the best way of restructuring or reorganising your business or group structure, our solicitors are highly experienced. We find the right solution at the right budget.

Whilst lawyers may not be the first professionals that spring to mind when thinking about any of the above types of restructuring, if you do proceed with any option, there will be legal issues considerations, advice and paperwork needed.

As a commercial only law firm which advises many small and medium businesses we are experienced in the difficult decisions often involved with a business restructuring. Our services are expert but our fees are highly competitive compared to larger law firms in London.

Choosing the best way to restructure

The approach taken will depend upon the key concerns and desired outcome.  Much depends on whether the restructuring is based on necessity and financial distress resulting in the need for business turnaround or whether the restructuring is designed to streamline, ring fence against risk or create efficiencies including tax efficiency.

Typical concerns will usually revolve around:

Goodwill and branding

Who gets to keep the trading name and goodwill requires a decision as this is an asset which can be very valuable. A further point is trading history – some businesses need a solid history to deal with lenders and suppliers. In other cases the reorganisation is an opportunity to bury an undesired history.

Continuity of business contracts

Existing contracts may be affected by a change of control of the resulting businesses. Consideration is needed as to whether any consents are required and if this could throw up issues.

Assets and liabilities

The cash position of the company will affect the choice of  route taken for the reorganisation. Another factor which plays a part is if there are assets such as property or investments as these impact on the tax position of the shareholders following the reorganisation.

Shareholders options on company restructuring

There are 3 key ways to restructure a business. The best choice will depend on your circumstances and business objectives.

  • Statutory demerger;
  • Reduction of capital demerger; or
  • Liquidation demerger.

Statutory de-merger

This usually involves a creation of one or two new companies (NewCo) underneath the existing parent company. The NewCo shares are then transferred to the individual shareholders in proportion to the value of the respective businesses. Alternatively, new companies independent and distinct are created from a business.

We find statutory de-mergers are a popular choice. A statutory de-merger offers a well established route to achieve many of the desired outcomes. It is possible to create the de-merged businesses free of any immediate tax liability. A big benefit is that HMRC will give advance clearance on the tax neutrality.

Reduction of capital de-merger

Splitting the business can be carried out by reducing the share capital of the existing company. The existing business is transferred to the shareholders or new companies held by the shareholders and the consideration for the transfer is treated as a repayment of share capital. If carried out as a scheme of arrangement, it can be very tax efficient.

Reduction of share capital in a private limited company

A company can reduce its share capital and realise cash by reducing the:

  • Number of shares;
  • Amount paid up;
  • Share premium account; or
  • Capital redemption reserve.

Capital reduction generates a reserve which can be either paid out to shareholders e.g. a departing shareholder or retained as a reserve for the company. It cannot be used to pay a shareholder a cash payment which exceeds the amount of the share capital reduction.

Reduction of capital requires shareholder approval and a solvency statement. Reduction of share capital is a popular route for splitting a business.

Liquidation de-merger

A liquidation de-merger involves dividing an existing business into separate businesses between existing shareholders and closing down or liquidating the existing company. It is commonly used where the shareholders want to continue running the business but do not share the same vision for the future.

The downside is that the trading history and goodwill of the de-merged company is destroyed. Liquidation is not always straight forward if there are potential liabilities to face. There are also the costs of a liquidator to consider along with whether the company can be legally liquidated.

HMRC have tightened up on the tax benefits available to shareholders upon liquidation. Consequently, we are finding that this route is not as popular as in the past but it still works in some cases.

Implementing a business restructuring

Often before a corporate restructure can happen the company must change its articles of association and get shareholder consents.  We look at what needs doing for you.

We review and/or draft the reorganisation documentation and

  • Deal with shareholder consents;
  • Flag key risks;
  • Warranties and indemnities – we help negotiate protections against liability for losses.

Tax on a business restructure process

Reorganisations can be very tax efficient, if carefully structured. Often, tax can be reduced to nil.  HMRC will offer clearance before any transaction is implemented to confirm that tax charges will not arise in respect of the reorganisation.

We will secure  HMRC clearance for you before implementing the reorganisation.

Tax risks on restructuring a company

If a restructure is not carefully structured the shareholders face risk as explained below.  However, if the reorganisation is structured in accordance with the appropriate tax laws many restructures are implemented and neither the the shareholders nor the business face increased tax charges – known as tax neutrality.

  • Income tax on shareholders on the value of the reorganised business;
  • No corporation tax deduction;
  • De-grouping charges on the company;
  • Unwanted stamp duty land tax on the properties leaving a group of companies; and
  • Loss of group relief.

For experienced, practical legal advice on restructuring your company or business or for assistance with the documents, legal or tax issues arising, please do get in contact.

Catherine Gannon

Catherine is well known for turning complex problems into solutions. No case is ever easy but she will find a way. In her spare time she runs Gannons a very successful law firm.

Let us take it from here

Call us on 020 7438 1060 or complete the form and one of our team will be in touch.