- A Section 110 De-Merger is a procedure to transfer the assets of a company into two or more companies. It was introduced in the Insolvency Act 1986 and is for use by solvent companies only.
There may be many reasons why shareholders may want to split the assets of a company into two or more companies, these may be:-
- To resolve a shareholder dispute
- To separate key assets to make the companies more commercially viable
- To remove the burden of regulatory requirements into a smaller more specialised company.
The assets of a company (we will call it Co A) are distributed to two or more companies by the liquidator (say to Co B and Co C). Co A’s shareholders will receive shares in Co B and Co C in consideration of this.
Tax advantages can be obtained as neither the transferee (Co A) nor the shareholders will attract income tax in relation to the distribution of assets.
It is essential when carrying out this procedure that clearance from HM Revenue and Customs is obtained and that shareholders obtain their own personal tax advice.
A Section 110 De-Merger is a complicated procedure and fees can be expensive.
The procedure – brief version
- Ensure that the parent company is correctly registered (Co A)
- Ensure the articles allow the transfer and issue of shares
- Ensure that no financing clauses will be activated as a result of the procedure
- Ensure that the company is solvent and obtain a Declaration of Solvency
- Negotiate and agree on the re-structure agreement
- Pass a special resolution (over 75% of shareholders must agree)
- Have consideration for creditors – an agreement or indemnity may be required
If you would like to know more about this procedure, please contact us by email email@example.com or telephone 01302 554925