01/04/20

Corporate Restructuring in Light of Covid-19

There won’t be a single business nor any individual who is not affected by the Covid 19 Virus. Should your business consider a corporate restructuring?

In this article, we look at the option of corporate restructuring in light of the pandemic.

We understand what we should do as individuals in terms of self isolating and being aware of symptoms, but how can we as owners of businesses look to protect all that it has taken us so long to build?

Owner managed businesses are particularly hard hit in these times as they often do not have cash reserves to carry them through months of potential disruption and forced closure. They are obviously particularly vulnerable if owners themselves become unwell.

Many owner managed businesses will have property within their company and perhaps other key assets such as fixed plant and equipment, or valuable intellectual property rights.  The risk is that if your trading company begins to fail, then any assets within that business will be subject to liquidation should the worst ever happen.

A way of protecting your business, not only during the threat of Covid 19, but also moving forward, is to corporate restructure your company, so that you place a holding (parent) company above your trading company. You can then move assets from the trading company into the parent company so that they are protected from insolvency.

This process is relatively straightforward. We will work with your accountants to seek approval from HMRC for the restructure to go ahead.  Once this clearance is received (or whilst we are awaiting clearance), we can work with you to structure the proposed transaction and draft the necessary documents to allow a holding company to be placed above your trading company.

The way in which this takes place is that all shareholders in your trading company transfer their shares to the new holding company.  The holding company becomes the sole shareholder of your trading company and the trading company becomes a wholly owned subsidiary of the new holding company.

Instead of receiving cash for the transfer of their shares to the holding company, the shareholders are issued and allotted the same or a similar number of shares in the holding company as they held in the original trading company.

As owners of the entire business, you can then operate the subsidiary as your trading company and transfer assets from the subsidiary up to the holding company where they will remain safe should the trading arm run into difficulties.

This restructuring can be carried out at any time, irrespective of any immediate threat.  It provides the shareholders with more comfort that any significant financial problems affecting the subsidiary will not result in them losing certain assets as they will be protected through the new group structure.

Obviously we are now subject to a threat nobody could have foreseen and thus the restructuring exercise will give peace of mind to owners of businesses not only through this difficult time but also during the time in which the economy begins to recover and beyond.

If you wish to speak to one of our Corporate Team in relation to this, or any other business matter then please contact either of our Corporate Partners, Corri Pedrick on  01803 202043 and Stuart Mathews on  01392 455534 .

Any conversation is no obligation. We will do what we can to assist you.

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01/04/20

About the author

Corri PedrickPartner

Corri is a Partner in our Business Team

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