S110 Reconstruction

A Section 110 Demerger is a method used to divide up parts of an organisation that were previously under common ownership. In the UK there are different types of demergers in the UK. With a Section 110 Demerger, closing a holding company via a solvent liquidation is required.

The Insolvency Act 1986, Section 110 allows Liquidators to accept company shares in respect for assets transferred from the holding company. To at least 2 new limited companies that have been created exclusively to segregate and restructure a group arrangement.

What is a S110 Reconstruction?

A Section 110 reconstruction is the final part of a process in which 2 (or more) new companies are created to obtain the assets from the reorganised company.

The steps in a section 110 demerger/reconstruction typically include the below

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A Section 110 demerger often includes

New holding company is formed
Shares are exchanged within the initial parent company for shares in the new company – these are the same amounts.
The assets of the original parent company are separated and moved to the new company
2 or more companies are created to receive the assets
The holding company is liquidated, the assets are transferred to the newly formed companies in exchange for the shares, distributions are made to the shareholders of the liquidated company.

Considerations when undertaking Section 110

Several tax related and legal issues can occur with a Section 110 demerger, it is important to consider the most Tax efficient way of completing the Section 110 process. It is important to check tax relief is available and should be attained where appropriate.
Liquidators will need to be appointed compensated against any liabilities emerging throughout the liquidation.
Directors are required to sign a Declaration of Solvency before the Members Voluntary Liquidation begins.