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Our corporate team has substantial experience in advising and carrying out demergers. Contact our expert corporate lawyers on:
A demerger is a separation of different business activities carried on by a company or group into separate companies or groups, which are then (usually) owned by the same shareholders.
Companies and groups demerge for various reasons, including:
There are several methods of effecting a demerger, each one having its own advantages and disadvantages.
The method chosen will usually be influenced by tax considerations and by the availability of distributable profits in the company.
It is critical that tax advice is obtained before considering a demerger to ensure that tax liabilities are not triggered and to obtain any available tax clearance.
Whilst demergers can be a strategic manoeuvre for companies looking to streamline operations, unlock value, or focus on core business activities, beneath the surface of this seemingly straightforward process lie a myriad of legal complexities and potential pitfalls that companies should keep in mind when contemplating a demerger.
Below, we have listed a few of these, but this is not an exhaustive list.
When dealing with property assets, companies must consider tax and, specifically, when the property is involved, SDLT. One common pitfall can be transferring property out of the original company to save on stamp duty costs.
However, if a property is left in the original company and instead, there is a transfer of shares in the trading entity, a significant tax saving can be achieved.
Transferring shares attracts 0.5% stamp duty, whereas SDLT on property transfers can skyrocket to 5% or more.
Careful tax planning here is crucial to save substantial costs.
Timing is everything in demergers, particularly concerning stamp duty obligations.
Delays can arise if stamp duty is payable or adjudicated exempt before proceeding to the next step where such levy is imposed.
Expediting the stamp duty process can shorten timelines, but if relying on stamp duty exemptions, you should anticipate longer adjudication periods—up to 6 to 8 weeks.
Engaging with lenders may be necessary as part of a demerger process.
Early discussions with lenders can help pre-empt any unnecessary delays and hurdles and it is crucial to ensure that such engagement is ongoing throughout any step plan to ensure any banking documents to separate assets and determining any necessary security arrangements for the new entities is dealt with in sufficient time.
The sheer volume of documents and formalities involved in a demerger necessitates planning.
Ensuring the availability of shareholders, directors and lenders, is crucial. Leveraging online signatures and powers of attorney can streamline the execution process, but careful coordination remains essential.
Whilst detangling businesses can potentially disrupt operational synergies when it comes to a demerger, clear communication and professional advice will help mitigate any disruption for stakeholders.
Our corporate team has substantial experience in advising and carrying out demergers. Contact our expert corporate lawyers on: