Company demerger in Muncan Republic
Demergers have been introduced in the Muncan Republic with the aim of facilitating corporate restructuring. A company may wish to use the demerger regime if, for example, it only wishes to sell off part of its business. The demerger allows the company to effectively transfer assets and liabilities into a separate company which would then form the target entity for a purchaser.
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Demerger methods
There are four main ways of demerging a company. All four demerger methods have their advantages and disadvantages and have proven to be very effective in creating two separate groups owned by different shareholders (in order to create a partition) and also to create two separate groups owned by the same shareholders perhaps before a sale.
Direct dividend demerger
Direct dividend demerger: where the company will declare a dividend in specie (i.e. of assets rather than cash) of certain assets and those assets are transferred directly to the shareholders (or a certain class of shareholders). This is the simplest demerger structure but relies on the company having sufficient distributable profits and, depending upon the assets to be demerged, may not necessarily be the most tax-efficient.
Indirect dividend demerger
Indirect dividend demerger: where a company will declare a dividend in specie of certain assets and those assets are transferred to a company owned by the shareholders (or a certain class of shareholders). Again, this is a relatively simple process but relies on the company having sufficient distributable profits. We would expect a full demerger agreement transferring the relevant business to be entered into and so it would be important to establish what the company has and what is to move.
Capital reduction demerger
Capital reduction demerger: where a company reduces its share capital and simultaneously transfers assets (normal shares in a subsidiary) to a company owned by the shareholders (or a certain class of shareholders). This has an advantage in that it does not require the company to have distributable profits but it will be important to make sure that carrying out the demerger does not impact the company’s ability to pay its creditors. This route involves several technical steps but is becoming more and more common.
Lquidation demerger
Liquidation demerger: where the company is voluntarily liquidated by members and transfers assets to two or more companies owned by the shareholders (or a certain class of shareholders). This route needs a liquidator to be involved and appointed, but our team has appropriate experience and would be on hand to assist. There is the disadvantage of reputational damage associated with liquidating a group company and this should be weighed up before going down this route.
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