Tips and Traps in Group Restructurings
5 December, 2017
Paul Lester, a partner in our corporate team with many years’ experience in helping groups of companies simplify their structures, gives you his top tips, and points out the traps to avoid, for a successful group restructuring.
- Get the structure right
The choice of how the reorganisation is to be carried out (for example share or asset sale) will be dictated by the reasons why you want to undertake the restructuring, so being clear on your motivation and what you want to achieve will be key. Common drivers are tax, streamlining to achieve administrative efficiencies, pre-sale preparation or post-sale integration.
- The importance of planning
Companies often underestimate what needs to be done for a group re-organisation. Set aside sufficient time and resources (internal and external) to do the job properly. Things like getting landlord’s consent to a lease assignment for example can take months.
- Identify the potential hurdles
You will need to work closely with your accountants to address any potential tax issues. On the legal side, there are a number of company law issues that can arise (from financial assistance to calculating distributable profits) so you will need to work closely with your lawyers to identify these at an early stage so that the reorganisation can proceed smoothly. Corporate governance should be high on your list of considerations throughout the transaction.
- Pricing – Book or market value?
A common pricing choice is for shares or assets to be transferred at book value and leftoutstanding as an intra-group loan. But does the transferring company have positive distributable profits to enable it to do this? Transfers for less than market value can lead to a number of other legal issues, for example in relation to directors’ duties, insolvency and distributions in kind. Transfer at market value would always be the safer option, but determining what this is can itself be quite a complex calculation. Professional advice is a must here.
- Document it properly
Just because the reorganisation may be internal, care still needs to be taken to formally document the transaction, particularly where it is done prior to a sale or if solvency is an issue. Make sure you have the correct documents and that these are signed in the correct way – property (intellectual and real) for example, have very specific requirements.
- Tie-up loose ends
There will be a number of important post-completion steps that should not be neglected, such as registrations and filing and notices for leases, assignments, payroll, VAT, pensions, claiming relief from stamp duty, Companies’ House forms etc.