We focus on helping clients to plan, implement and complete corporate restructurings of any size; delivering savings in costs and management time and increasing the efficiency of our client’s groups. In this article we consider the headline issues in restructurings that will help you prepare for what is involved.
It is important that restructurings are well thought through with specific steps for implementation. Things to consider before tidying up your corporate group:
1. Thorough Planning
Early engagement of advisers across multiple disciplines is paramount and will identify the key legal, treasury, accounting and tax issues that may arise in any given procedure. A day considering the issues will seldom be wasted.
From a legal perspective, you would need to consider if due diligence should be undertaken and if commercial risk should be addressed. Moreover, it is important to understand whose consent is needed – whether this be from shareholders, investors, lenders, contract counterparties, regulators, escrow agents, or the Financial Conduct Authority.
Tax planning is also key. Intra-group reliefs are available in many jurisdictions, meaning that intra group asset and rights transfers can, in some cases, be exempt from or pay a reduced rate of tax.
Accordingly, tax planning is critical to any restructuring to avoid unintended consequences such as de-grouping charges, loss of reliefs or credits, or exposure to tax in a new jurisdiction.
3. Clear Objectives
Restructurings may focus on straight simplification, de-grouping or consolidation ahead of a corporate transaction (e.g. securing investment or readying the group for a sale process). They may also be for the purpose of releasing share capital or locked up funds for the benefit of shareholders, removing unwanted subsidiaries, or managing risk by ring-fencing toxic assets or liabilities.
Consider also the extended opportunity with undertaking a corporate re-organisation. With a high level of focus and management engagement, wider goals may be achievable, including: work force reorganisation, re-domiciliation, succession planning, a corporate governance health check or a legal audit on strategic assets (such as business critical intellectual property rights).
4. Managing and Resourcing
Restructurings can absorb considerable management time and, as such, considerations must be made to create a process which is as efficient as possible:
- Can the exercise be wholly or partially outsourced, once the planning is complete?
- Who will manage it? How long is it expected to take?
- If the group operates internationally, is there to be a lead team co-ordinating the activities?
- How will the authority for actions be delegated and managed?
- What legal and regulatory compliance is required in each jurisdiction?
- How will the multiple – often hundreds – of documents be signed? Is there a group policy? Can electronic signatures be used?
Almost inevitably, plans will change; you will need to adapt the plan to new circumstances. Ensure you have advisers who can deliver solutions to unexpected problems.
5. What is Actually Involved?
Once a plan is firmly in place, it often helps to consider the restructuring as a series of corporate actions. Good advisers will help you understand what is involved. Typically, this could include:
- Asset transfers;
- Liquidation or strike-off of redundant or dormant companies;
- Distribution of cash and assets;
- Moving / making changes to a workforce;
- Business demergers;
- Capital reductions, consolidations and conversions;
- Capital contributions;
- Debt assignments, novations and waivers;
- Balance sheet impairments or capital write-downs; and/or
- Treasury led exercises to generate cash flow and liquidity; removing financial blockages.
This is by no means an exhaustive list. Good advisors will be able to advise you on the most appropriate procedures to help you achieve the ultimate goal for your re-organisation.
Directors in the UK owe a number of statutory duties which must be remembered in the context of a plan to implement a group restructure. Directors must understand how their company fits into an overall restructuring plan; they must understand what the process will be, and how the company they oversee will be affected.
The leading English law case on unlawful distributions – Aveling v Barford – arose in the context of a group restructure and other jurisdictions have equivalent legislation. So, it is important that all directors have a full understanding on the restricting process and carefully consider the duties which they owe to the company (and its shareholders) when going through a corporate restructure.
If you’re looking to reorganise your business or adjust your corporate group structure, our experts can help. We can implement your requirements in an efficient and cost-effective manner, providing the relevant advice and legal documentation. Please contact us for further information.
Author: Alex Butler
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