De-risking/Asset preservation and future-proofing your business
Nigel Beckwith, 7th May, 2020
You’ve built up a good business and you think you have protected yourself as best you can by trading through the vehicle of a private limited company... but have you really done the best you could have done?
Well done if you've managed to avoid giving any personal guarantees in relation to your company – the Bank only has a debenture over the assets and undertaking of your company – excellent - the HP company has provided cars to the company without insisting upon a personal guarantee – great - and you managed to negotiate with the landlord of your business premises a rent deposit of 3 months to cover its exposure under the lease – even better!
Congratulations, so far so good. Assuming there is no allegation of wrongful or fraudulent trading, you have protected yourself against any personal liability if the business all goes wrong but could you have done more and indeed is there still time to do more? You will be surprised but the answer may well be yes!
With the shockwaves of the Coronavirus pandemic still in their early stages, my colleagues and I at Gosschalks have been busy advising savvy business owners who contacted us having woken up scratching their heads wondering what, if anything, they can do further.
Many successful SMEs have stored up wealth and valuable assets which are at risk of being lost if their business goes down but that doesn't have to be the case...
Ringfencing valuable parts of the business, valuable freehold properties and/or valuable IP rights is a tried and tested tool for preserving those jewels even if the rest of your business might become terminal and provided the company is solvent now, and will be in the foreseeable future, as a consequence of any transaction which achieves that ringfencing it will work!
Ringfencing assets in a private limited company can essentially be done in one of two ways – firstly, by way of a demerger to completely divorce assets in a company to some or all of its shareholders or secondly, by way of a reorganisation and the creation of a group structure with a non trading holding company whilst at the same time maintaining the same shareholders and shareholdings.
A demerger is certainly something that should be considered but its tax effects and implications are far more complicated and require third party expert advice to work through the minutiae and complexities. For that reason, a demerger is outside the scope of this note. However, it is something that we advise clients upon on a regular basis so we can certainly help if this is the best option for your business.
A reorganisation and the creation of a new group with a non trading holding company at the top with one or more subsidiaries holding different parts of the businesses and/or not trading, but simply holding valuable assets, is a simpler, quicker and cheaper solution and typically achieves what most of our clients require in the short-term.
At Gosschalks, we're already working on a number of such reorganisations instructed upon in the last few weeks as business owners in the current business climate look to how best secure their otherwise successful businesses from a worst case terminal scenario, depending on how the 'new world' looks post relaxation of the existing lock down and the gradual return to what will be the new 'normal'.
It's what we refer to as de-risking and future proofing your business and shouldn't be ignored at the best of times, let alone in the current climate.
Notwithstanding the relative straightforward nature of creating such a group, there are a number of legal hurdles that do need to be faced, considered and overcome so as to ensure any such de-risking/future proofing is as robust as possible. These include:
The need for a tax clearance and tax advice so as to ensure there are no unforeseen and adverse income tax, capital gains tax, stamp duty or SDLT liabilities that arise as a consequence of what is being done
The position of your Bank and/or any other finance provider who holds security over any of the business, assets and undertaking of your company
The effect (if any) on any of the employees in the business in what you are doing
The effect (if any) on any commercial contracts the business has with any of its customers and suppliers and in particular any inadvertent change of control triggered by what you are doing
The effect (if any) on any licences your company holds to enable it to trade
The solvency of the company both before and after any transfer out of any assets from your company as if the company subsequently goes down, a liquidator can challenge pre liquidation transactions denuding companies of valuable assets if the correct procedures have not been followed. Consideration needs to be given to whether assets can be transferred at book value or whether it is safer to get independent valuations and affect them at market value
The team here at Gosschalks can help with all of the above and is well placed to do so even during the lock down period as we're fully functional making use of the latest technology to ensure that we not only provide the same quality of advice, but also the same service levels our clients throughout the country have come to expect.
Need advice and support to help protect your business? Get in touch for a no-obligation chat with us today...
Alternatively, any member of our Corporate team is on-hand to assist as we're all working at full capacity.