Guide to Company Reorganisations: Restructure with Confidence and Clarity

Company Reorganisations: An Overview

A company reorganisation usually involves moving assets from one group company to another. These assets might be shares in another group company or the business itself.

Why carry out a company reorganisation?

Groups reorganise for many reasons. Some of the most common are:

Simplifying the group structure
After a period of acquisitions or the use of special purpose vehicles, the group’s structure can become too complicated. In other cases, several companies may run parts of the same business. The group may want to bring those parts together under one company. Groups with international operations often look to tidy up their UK structure.

A complex structure can:

• Drive up costs
• Tie up management time
• Affect how HMRC views the group

Simplifying can lead to:

• Fewer companies to manage, freeing time to focus on operations
• A clearer structure, improving HMRC’s risk assessment
• Lower compliance costs
• Easier reporting

Stages of a company reorganisation

Preparing for a sale
Sometimes, a reorganisation is done to get ready to sell part or all of the group. This might involve removing dormant companies to make the group more appealing to buyers. If only part of a business will be sold, those activities can be transferred into a separate company ready for disposal.

After an acquisition
Following an acquisition, the new owner may need to move assets into the most suitable subsidiaries. For example, this could involve moving businesses between group companies (known as hive-up or hive-down) or transferring the target into a holding company.

Before making an acquisition
A buyer might restructure first to ensure the target fits smoothly into its group.

What does a company reorganisation involve?

These projects typically follow these stages:

1. Planning
   Agree objectives, talk to stakeholders, and appoint advisers, usually legal and tax specialists.
   
2. Due diligence
   Check for any issues that could affect the project. This includes:

This stage also identifies the assets that must be moved before striking off any companies.

3. Steps Plan
   Develop an overall plan that sets out the main aims and the tax impact of each step. It lists which companies will be eliminated and which will be kept. More detail is then added for each company, along with a schedule of the legal documents to be prepared.
4. Approvals
   Secure all necessary consents before taking any steps. This could involve banks and shareholders.
5. Transferring businesses and assets
   Use agreements to transfer assets to the companies that will remain.
   
   • Price: Transfers often take place at book value, using the figure shown in the accounts. Sometimes market value must be used. It is vital to confirm which valuation applies in each case.
     
   • Tax: Transfers within the same tax group are usually tax neutral. But you need to consider the risk of clawback if companies later leave the group.
     
   • Pay close attention to VAT, the taxable status of the assets, VAT grouping, and whether the transfer can qualify as a transfer of a going concern.

6. Simplify balance sheets
   Before striking off, it is common to reduce capital, declare dividends, or clear intra-group balances.
7. Strike off or liquidate
   Companies with no trading history can often be struck off, which is the simplest approach. Companies with a complex past may be better suited to liquidation through a members’ voluntary liquidation.

Once struck off, a company can be restored to the register. Under the Companies Act 2006, an application can be made within six years of dissolution (or with no time limit if linked to a personal injury claim).

Key points to watch during a company reorganisation

When planning a simplification, pay close attention to:

• Tax liabilities, including stamp duty and SDLT, and whether any tax reliefs will be lost
• Pensions, especially if there is a defined benefit scheme
• Whether companies have enough distributable reserves and remain solvent

Directors should also consider their duties and whether the project benefits the company.

Other issues to consider during a company reorganisation

Distributable reserves
If transferring assets at book value, the transferring company must have distributable reserves. A simplified capital reduction is often used to create these reserves.

Under the Companies Act 2006, private companies can reduce capital without going to court if:

• The directors make a solvency statement
• A special resolution is passed

The directors must confirm the company can pay its debts when the statement is made and for the next 12 months. Making a statement without reasonable grounds is a criminal offence.

The reduction takes effect when the documents are filed at Companies House. The Companies (Reduction of Share Capital) Order 2008 confirms the reserve created is usually treated as realised profit.

Distributions in kind
When transferring assets to a parent or fellow subsidiary at book value, the rules on distributions in kind apply. Transfers at market value fall outside these rules.

Since the Aveling Barford case, it has been clear that transferring an asset below market value without distributable profits amounts to an unlawful distribution.

The Companies Act 2006 clarifies this. If there are distributable profits, the distribution amount is:

• Zero if the price equals or exceeds the book value
• The shortfall if the price is below book value, which must be covered by distributable profits

Appendix 1 of the ICAEW guidance has worked examples.

TUPE
An intra-group transfer could trigger TUPE. If TUPE applies, employees transfer on the same terms, with continuity of service and most liabilities. The transferor must inform employees about:

• The proposed transfer and its reasons
• The date
• Its impact
• Any measures planned

Pensions
If a group company has been part of a defined benefit scheme, the trustees should be consulted about how the project affects the employer covenant.

Capital contributions
Sometimes a parent will make a capital contribution to a subsidiary. This could be a cash payment or waiving a debt.

Documents must show:

• It is a one-off payment
• It is not repayable
• No asset or right is received in return
• The payment is credited as a capital contribution, not a profit

Clearance from HMRC may be needed to confirm the tax treatment.

Although called a “capital contribution”, this does not involve new equity and is not regulated by company law. The company can use the funds as it wishes. The key issue is whether the contribution creates realised profits. The ICAEW guidance sets out how to assess this.

Demergers
A demerger separates business activities that were held under one company or group. This can be part of a simplification.

After a demerger, the shares in the separated company are usually held by the same shareholders in the same proportions. In a partition demerger, trades are split into different companies held by different shareholders. This often happens where a dispute requires the separation of assets.

Demergers can be complex. Specialist advice is essential.

Assets of a dissolved company
When a company is dissolved, any remaining property passes to the Crown as bona vacantia. It is important to identify all assets before strike-off to avoid unintended losses to the group. This is why thorough due diligence matters.

If you are thinking about a company reorganisation then get in touch today

Useful government links for further reading when looking at company reorganisations

Companies Act 2006
Link: https://www.legislation.gov.uk/ukpga/2006/46/contents
Use when discussing capital reductions, distributions, and company law processes.

GOV.UK – Strike off, dissolution and restoration
Link: https://www.gov.uk/strike-off-company-from-companies-register
Relevant for the strike-off process, restoration risks, and time limits.

Transfer of Undertakings (Protection of Employment) Regulations (TUPE)
Link: https://www.gov.uk/transfers-takeovers
Useful when talking about employee transfers and consultation duties.

company reorganisation