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Split off, Split out, Partition, Demerge

…or just sell part to save the rest - Realising value from part of a group

We are seeing lots of corporate clients looking to sell off part of their business or group. The drivers vary but typically reflect a diversification that didn't work, an acquisition that has proved a burden or just that one part of the business is struggling to remain competitive. Sometimes the separate parts are more valuable – and saleable – than the whole.

So while financial stress or distress may be the typical climate, we have also seen demerger and partition situations where different shareholder groups want to preserve separate parts of the business. Equally, there may be tax reasons why reorganising a group enables a more favourable treatment for exiting shareholders.

The different forms of statutory direct or indirect (sometimes called a "three-cornered") demerger involving a dividend in specie, or "non-statutory" solvent demergers - either a "Section 110 reconstruction" or a "return of capital" or "reduction of capital" demerger – all have different applications.

Robin Staunton, who leads the Corporate Turnaround and Reorganisations team at national law firm TLT, adds:

"No two cases are alike, but it is always surprising to clients just what can be achieved. While it is always tough to deliver the optimum result if the situation is highly distressed, equally it is frustrating when avenues are closed off because the company pursued a sale agenda before looking at the structure. You wouldn’t put your house on the market before considering whether there are serious structural faults.

"TLT has a real track record for delivering solutions to release stakeholder value by one or other form of split-out. Whether this is a simple sale of one company in the group, or the reorganisation of a family company to accommodate different agendas, or the urgent sell-off of part of the business in order to preserve the rest, we are always willing to speculate some time to suggest options that can deliver considerably greater returns to stakeholders and avoid significant sums in unnecessary tax. A conversation on the point is never wasted."

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at April 2013. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.

TLT LLP is a limited liability partnership registered in England & Wales number OC 308658 whose registered office is at One Redcliff Street, Bristol BS1 6TP England. A list of members (all of whom are solicitors or lawyers) can be inspected by visiting the People section of this website. TLT LLP is authorised and regulated by the Solicitors Regulation Authority under number 406297.

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