An intra-group reorganisation is the transfer of shares in a target company from one member of a group to another, or the transfer of the business and assets, or possibly a business division, by the target company to another member of its group, or a newly incorporated company (within the group).
Such a reorganisation is generally carried out for one of the following reasons:
- efficiency
- tax
- before a sale
- after a sale
However, the intra-group reorganisation is structured, the parties will need to consider (amongst other things):
- Borrowing and security – if the target company has any outstanding borrowing, and if so, what is to happen to that borrowing and any relating security as part of the re-organisation. The relevant lender(s) will need to be consulted and should be contacted early in the process.
- Contracts – which contracts are material to the business? In the case of a share sale, the consent of the other contracting party may be needed to the share sale (sometimes referred to as a ‘change of control’ clause), whereas in an asset sale, contracts will need to be assigned or novated. Novation is a tripartite arrangement between the target company, the other contracting party and the buyer, where the buyer steps into the shoes of the target company and assumes its obligations and benefits under the contract, with the consent of the other contracting party.
- Leasehold property – the consent of the landlord may be needed on a share sale (even where it is intra-group). On an asset sale, the landlord will need to consent to the assignment of the lease, and the landlord may require security for the new tenant’s obligations under the lease, either in the form of a guarantee or a rent deposit deed, and so consideration will need to be given as to a guarantee can be given, or how a rent deposit will be funded.
- Employment – if there is an asset transfer, the Transfer of Undertaking (Protection of Employment) Regulations 2006 will apply to protect the employment of employees that work for the target business, and the parties must comply with the obligations set out those Regulations.
- Consents – are there any consents which are needed to operate the business. Is consent needed from the party that provides the relevant consent to the share sale, or does the buyer need to apply for such consent on an asset transfer?
- Intra-group reorganisation arrangements – does the target company or the business use any assets owned by another member of its group, for example, is there a shared IT system, or are there any services provided by another member of the group that will need to continue after the sale. This is possibly more relevant where there is to be an onward sale of the target company or the business.
- Pricing – the price that will be payable for the shares or assets to be transferred, and how payment will be structured.
The parties will need to consider an intra-group reorganisation well in advance of the actual re-organisation being implemented.
Tax advice will be needed, lenders, landlords, and other contracting parties may be involved in the process, and the time each of these parts of the process takes, must be factored into the overall timeline.
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