Simplifying Group Structures

Tue 13 Jun 2017

If the current state of affairs wasn’t bad enough with Brexit (soft Brexit, hard Brexit, what Brexit!), it would appear that the outcome of the General Election has hardly helped to stabilise the position, with no real outright majority. The only real certainty we have at the moment is that we’re in a period of uncertainty – there are certainly strange times ahead.

But whilst the uncertainty can be a cause for concern, it also serves as a good reminder to evaluate your business structure to determine whether it is structured in the best way for the challenges that lie ahead. Indeed, if your business sits within a group structure, reviewing the structure itself can help identify whether each company within that structure is serving a purpose. If indeed there are companies within the group which are surplus to requirements, now is a good time to rationalise the position and simplify the corporate structure.

Dormant Subsidiaries

There are different ways to deal with dormant subsidiaries that are no longer required. The easiest way is to file a DS01 form at Companies House to strike off the business – it costs £10 however there are various criteria to be met before going down this route and we would recommend that you check with one of our Restructuring Services team who will advise whether striking off is applicable. This is because there are risks with going down this route, and if it is done incorrectly, the company can be restored to the Register at Companies House and there can be personal liability for the former directors.

This means that quite often a rationalisation of your group structure is best served through a members’ voluntary liquidation process, which our Restructuring Services team will guide you through. This is a solvent process which is straightforward, but the benefit is that the duly appointed Liquidator will review the company position to make sure that creditors have the opportunity to claim in the Liquidation and such claims are then dealt with by the Liquidator.

In addition, within a group there can often be taxable benefits for keeping dormant companies alive. Our Tax Team have specialists in Restructuring which mean that we can ensure that the companies have the correct tax advice so that any distributions between the companies in the group can be dealt with both prior to liquidation and post-liquidation correctly from a tax perspective. Quite often, this can result in substantial savings for the group, where the benefits from losses carried forward might otherwise have been lost.

Case Study

Mazars LLP were instructed by a client to assist with the rationalisation of their corporate structure. A number of companies had been bought over the years and it was felt by the parent company that it would be a good idea to reduce the number of now dormant subsidiaries sat within the group as this would reduce the group’s compliance costs, if nothing else. Prior to the appointment of liquidators, the group structure was reviewed and areas of potential risk were identified (these included potential liabilities arising under product warranties and historic employee claims). The VAT group position was also reviewed and action taken to remove the relevant companies from the VAT group. Distributions were also made prior to the appointment as appropriate, in accordance with guidance from the Tax Team. Following the appointment of Liquidators, the insurance liability position was finalised, with the Liquidators obtaining clearance from the insurers that all claims would be covered under another existing policy and the pension schemes were reviewed to make sure that there were no issues which could arise from the subsequent dissolution of the employer companies. Following the receipt of final tax clearance from HM Revenue and Customs, the dormant subsidiaries now in Liquidation were able to move to closure, with the liquidations closing after just nine months.

Managed Wind-Down

It is quite possible that within the structure there are a number of profitable businesses which are coming to the end of their life-cycle and therefore need to be wound down. There might be a property on the balance sheet which is keeping the balance sheet solvent, and reserves which need to be reviewed and dealt with; again, using the solvent liquidation process can be a good method of controlling the outcome and managing the risk of liabilities cropping up, which you might not otherwise have thought existed.

Our Restructuring Services experts will ensure that the wind down process is managed correctly, assisting the directors with the closure process, whether that includes asset realisations, dealing with employees, liaising with suppliers and any other creditors, or any other issues which may crop up. In tandem with our Tax Team, we will make sure that the distributions to shareholders are timed correctly and any outstanding matters following this will be picked up by our Liquidation team.

Case Study

Mazars LLP were engaged by a client to assist with the wind down of their business after the product they had been making was no longer commercially viable – the technology in the market within which the company operated had become more advanced and the company could not afford to keep up with its competitors. The directors took the decision to cease trading and wind down the business. They continued to collect the outstanding book debts and realise as many assets as possible prior to the appointment of Liquidators, following which the Liquidators took over the asset realisations. All creditors were paid in full from the proceeds and the pension scheme, of which the shareholders were the only remaining members, was wound down and the shareholders’ benefits were transferred to a different scheme. Following the resolution of outstanding matters, the liquidation was brought to a conclusion, with significant dividends being distributed to the members.

If simplifying your group structure sounds like it would be beneficial to your business, please contact our Restructuring Services team who will be happy to assist you.