Documents for Business

In excess of 1,000 customisable documents covering every conceivable business issue.

Introduction to this document

Company reorganisations summary

There are different types of company reorganisation. These transactions require professional advice; use our summary to guide you through the jargon.

Dividing a business up

A business may need to be split up for a number of reasons, for example for tax or accounting purposes, to enable people to run different parts of the business or in preparation for a sale of part of the business. This can be achieved by a “hivedown”, whereby part of a business is transferred to a wholly-owned subsidiary of the original company. Alternatively, the businesses can be separated completely by way of a demerger (a so-called section 110 reorganisation), which involves the transfer of part of the business to each of two new companies and then the liquidation of the original company.

Consolidation of businesses

Where two or more separate businesses are to be brought within the same group, for example so that both can be sold easily to a third party, a share-for-share exchange can be used. For example, where a family runs two separate companies and wants to sell them to the same third party, it can transfer the shares in one company to the other in return for shares in the second company. This results in the first company becoming the subsidiary of the second, so the purchaser of the two businesses together just needs to buy the shares of the second company from the family.

Bespoke arrangements

Of course, every company and group is different and one of the off-the-shelf options may not achieve the desired result. For such situations, the court can be asked to approve a special arrangement or series of transactions, called a scheme of arrangement. This is useful where there are dissenting shareholders, for example, preventing a standard procedure going ahead, or where there are other complicating factors. A new procedure, similar to a scheme of arrangement, has been introduced to help companies in financial difficulties as a result of the coronavirus pandemic. It gives companies a chance to put a reconstruction plan into action in an effort to avoid insolvency.

Directors’ duties

Reorganisations are complex and require specialist legal, accounting and tax advice. When the directors involved are taking the requisite decisions to consider and approve these transactions, they must abide by their duties and ensure that the proposed transaction is in the best interests of the company. See our Directors’ Duties Summary for further information. It is also important that directors follow the correct procedure as instructed by their advisors.