At Deloitte Legal, we are known for the global and domestic reorganisation projects that we do – helping businesses navigate complex laws and multiple stakeholder issues to deliver organisational change.
Clients sometimes come to us for advice because projects that they have previously implemented have gone wrong and they need to take expensive remedial action. Here are our five tips for a successful reorganisation project to get it right the first time around.
1. Having the right mindset - intragroup does not necessarily mean simple
Large projects often involve multiple group entities in multiple jurisdictions. That is a lot of stakeholders, advisers and logistics to coordinate. Technology can help here and is developing fast. Tools are available for planning, managing and tracking projects and making collaboration easier. eSignature platforms can also be used to streamline the signing process, although the rules in each jurisdiction will need to be checked.
Tip: Start off on the right foot with careful, detailed planning – allow time to explain, and listen to, stakeholders at the outset and consider key timings and logistics early on.
2. Complying with legal detail
Intragroup reorganisations typically involve complex mandatory legal processes. If not followed, transactions can be void and need to be unwound and, in some cases, criminal sanctions can apply. A good understanding of the procedures and careful implementation will be key. This can be especially important if late changes crop up and legal steps need to be amended at the last minute.
Developments in the law need to be monitored and a “same as last time” approach may not always work. Clients will need to consider the new National Security & Investment Act, which has introduced a regime for mandatory notification to the government if a “trigger event” occurs in any of 17 sectors – even if the trigger event is intragroup. Other changes include new requirements to register overseas entities that own or acquire UK property and proposals to reform Companies House procedures.
Tip: Make sure that you ask the right questions and understand the legal issues in all jurisdictions. Taking time to spot issues at the outset and at other key stages in the project can save time, expense and the commercial ramifications of any remedial action later on.
3. Intragroup does not mean no scrutiny – usual standards of care and diligence are essential
It is a common misconception that there will be no scrutiny of intragroup transactions, that all are ‘friendly’ group parties and there is no need to document and evidence as thoroughly as a third-party transaction. In fact, auditors and tax authorities can (and do) scrutinise transactions and raise queries. Transactions may also be open to scrutiny further down the track, by potential buyers as part of a due diligence exercise or in the event of insolvency.
Tip: Challenge your own thinking and make sure you allow time to consider the issues from the different specialists working on the project.
4. Directors’ responsibilities – remember that the directors’ legal duties are not diluted just because a transaction is intragroup.
As part of their decision-making process, directors of English companies will need to consider the duty to promote the success of the company, manage any conflicts of interest and comply with their other general duties in the usual way. Transactions will need to be planned and implemented with reasonable skill, care and diligence.
Tip: Directors should be provided with adequate training on their legal duties. If the directors’ actions do not comply with their duties, shareholders may be able to give authority in advance, or ratify any breach after the event, although this will depend on the circumstances.
5. Corporate governance
Corporate governance standards have been in the spotlight, following several large-scale business failures. The Companies Act includes baseline requirements for corporate conduct and record keeping. These are supplemented by codes of best practice for corporate governance (which usually apply to larger companies) and the Institute of Directors has also recently called on the government to develop a voluntary code of conduct for UK directors.
Tip: Make sure that you comply with the laws, codes and corporate policies that apply in your case. Intragroup transactions should be documented correctly and comprehensive, accurate records kept.
If you'd like to discuss any point from this blog post, or learn more about our Corporate Reorganisations offering please contact:
Rachel Hossack - Corporate Reorganisations Partner
Nirosha Perera - Corporate Reorganisations Director
Angela Johnston - Corporate Director and Knowledge Lawyer
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