Thackray Williams

Hard times. Businesses focussing on survival strategies, rather than those aimed at growth. This is understandable. People plan for the worst.

We are seeing this with many Clients. They’re weathering the storm, but fear that their business may yet suffer significant damage. In these circumstances, we will work with Clients to produce positive re-structuring solutions, which can protect their most important business assets.

For example: Company A has a sound business model, but sees turnover falling. It has significant business assets (perhaps plant, specialist equipment, freehold, trademarks etc) and is worried that these may, at some point in the future, be eaten-up by creditors if the worst happens, leaving the founder high and dry. How can these assets legitimately be protected?

One solution is to create a new holding company (Holdco), making Company A its 100% subsidiary. This is straightforward. Holdco then enters into an agreement to purchase Company A’s significant assets for full market value (this is crucial) but the purchase price is left outstanding as an inter-company debt. The business in Company A can continue, because Holdco will still  licence/allow use of those significant assets.

Provided that objective valuations of the assets are obtained, and Company A is solvent (again crucial), the chances of subsequent attack are slight. In addition, since the sale by Company A will have produced a paper profit, it can, if necessary, declare a dividend to Holdco as its parent. This can then be used to off-set the liability to pay the purchase price, making it cash-neutral for the group.

The net effect, therefore, is that the group’s most important assets are ring-fenced from trouble at the Company A level. It depends, of course, on Company A being solvent. There may also be practical issues to consider, such as bank consent if it has a charge over Company A, or the extent of any transfer costs such as stamp duty. It will also be prudent to obtain tax clearance, but this too can be straightforward. Overall, it can be a cost-effective exercise.

Your crown jewels may never be completely safe, but make sure they are in the best possible place.  

For more information contact Robert Goddard on 0208 290 0440 or email: robert.goddard@thackraywilliams.com