The client is a long-established, family-owned construction group with a trading subsidiary operating from premises owned by the parent company. The group was originally founded in the 1960s and had evolved to include multiple family members and discretionary trusts as shareholders. The client sought to restructure the group to reflect diverging commercial and succession planning objectives among family members.
The primary objective was to facilitate a capital reduction demerger that would separate the trading subsidiary from the holding company, enabling two family members to take sole control of the trading business. This would allow them to pursue future strategic opportunities, including potential sale or succession planning, without being constrained by the wider family ownership structure. Meanwhile, the matriarch of the family retained ownership of the holding company, preserving the legacy of her late husband and ensuring continuity for future generations. The transaction needed to be structured in a way that was tax-efficient, legally robust, and compliant with all relevant corporate and stamp duty legislation. It also required careful navigation of family dynamics and trust arrangements.
The challenges
The key challenges included:
- Complex Shareholding Structure: The group was owned by individual family members and two discretionary trusts, requiring careful coordination and documentation.
- Tax Considerations: Ensuring the transaction qualified for relief under section 77 of the Finance Act 1986 and clearance under TCGA 1992, ITA 2007, and CTA 2010.
- Family Dynamics: Balancing differing objectives between family members, particularly around succession and sale of the business.
- Legal Execution: Drafting and executing the necessary documents, while ensuring compliance with Companies Act 2006 and trust law.
The Moore Barlow solution
Moore Barlow advised on and implemented a capital reduction demerger involving:
- Incorporation of a new company to acquire the entire issued share capital of the holding company via a share-for-share exchange.
- Allotment of consideration shares in newco mirroring the existing shareholdings in the holding company.
- Execution of the transaction documents required to facilitate the transaction.
- Submission of a detailed stamp duty adjudication application to HMRC, successfully obtaining exemption under section 77 of the Finance Act 1986.
- Coordination with tax advisers to secure clearance under TCGA 1992, ITA 2007, and CTA 2010.
- Ensuring all documentation was properly executed and filed, including share transfers, certificates, and register updates.
The outcome of the matter
The transaction was completed smoothly and within the desired timeframe. The capital reduction demerger enabled the trading subsidiary to be separated from the holding company, with ownership transferred to the two sons of the founder. This allowed them to move forward with their own strategic plans, including involving their spouses in the business and exploring future sale options.
The matriarch retained full ownership of the holding company, preserving her late husband’s legacy and ensuring the business could be passed down to her grandchildren. The trusts remained intact, and the transaction respected the wishes of all parties involved.
The client benefited from:
- A bespoke legal structure tailored to their family and business needs.
- Full tax relief and HMRC clearance, avoiding unnecessary liabilities.
- A clear path forward for both branches of the family.
- Preservation of family wealth and legacy.
This transaction showcased the importance of aligning legal structuring with family and commercial goals. By carefully navigating complex shareholder arrangements and securing the necessary tax clearances, we delivered a solution that balanced legacy preservation with future flexibility.
Isabelle Balch – Corporate Solicitor
Key takeaways
- Capital reduction demergers can be an effective tool for separating business interests within family-owned groups.
- Early engagement with tax and legal advisers is essential to secure necessary clearances and exemptions.
- Sensitive handling of family dynamics is crucial to achieving a successful outcome.
- Moore Barlow’s corporate team has deep experience in structuring and executing complex group reorganisations.
How Moore Barlow can help
Group reorganisations, including capital reduction demergers, are powerful tools for succession planning, unlocking shareholder value, and resolving ownership disputes. Our corporate solicitors regularly advise on share exchanges, trust structures, and tax-efficient reorganisations. If you’re considering a restructure, contact Moore Barlow’s corporate team to explore your options.
Further reading
How to handle missing or unclear share records before a company sale
