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What is a Section 110 Scheme of Arrangement?

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What is a Section 110 Scheme of Arrangement?

Reviewed: 21st January 2019

When a solvent company chooses to enter liquidation, this is done through a process known as a Members’ Voluntary Liquidation (MVL). This may be done if the directors want to move on from the business, perhaps through retirement or the business just coming to a natural end. However, sometimes an MVL may be used if a company wants to divide its operations between different limited companies, or transfer some or all of its assets.

This is sometimes known as a Section 110 or restructuring MVL and it allows company assets to be transferred to another company or companies in return for shares of that company. This is most commonly used to separate one part of the business from the larger company or corporation it is attached to. It can be seen as a type of demerger and can be used for a variety of reasons. It is often done if a company wants to separate the different services it offers into their own limited companies, and can similarly be employed if a company wants to separate a perceived riskier side of the business from the main company. Restructuring MVLs can also be used as a way to solve disputes between shareholders as each party is able to take a part of the business, form their own limited company, and go their separate ways.

There are two main forms of a restructuring MVL – demerger and partition. Let’s explore each option more closely.

  • Demerger – This involves transferring one part of a business to one company, and another part of the business to another company. Any shareholders of the original company will receive a proportional amount of shares in the all of the new companies created. A demerger may be used if property needs to be separated from the existing business, some of the business is going to be sold off, or some of the business activities need to be separated from the core company.
  • Partition – This is a similar process to a demerger, however, the difference comes in how shares are distributed following the transfer of assets. Unlike a demerger where a shareholder will hold shares in all companies where assets have been transferred, in a partition each shareholder will take all of their shares in just one of the companies. This is often the preferred course of action where there is a shareholder dispute, such as an impending divorce or differing objectives for the future of the business.

One important caveat to a restructuring MVL is that it needs to be tax neutral for both the shareholders and the company itself. Due to this HMRC need to agree to this process before it can take place and they will only give their consent if you can prove that it will be a tax neutral exercise. It is vital that you involve both an insolvency practitioner and an accountant if you are considering this process at the very least. The insolvency practitioner will handle the MVL, and the accountant will ensure the process is above board from a tax point of view and get clearance from HMRC. Restructuring MVLs can be extremely complex and therefore you may need to enlist the services of a solicitor particularly if there is a shareholder dispute or if property is being transferred.

If you are considering a restructuring MVL for your company, you will need to speak to a tax specialist and a licensed insolvency practitioner before going any further. Real Business Rescue’s team of experts can talk you through the entire MVL process and explain the implications of a restructuring MVL. With 72 offices across the UK, you’re never far away from expert and confidential advice.


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