Top tips on how best to prepare for a reorganisation
Published on 9th Nov 2023
What are the key considerations and actions for businesses when undertaking a reorganisation?
Reorganisations, which are on the increase due to current market conditions (see our Insight on the market trends driving this), are inherently complex and involve a series of transactions that need to be implemented correctly (and often in a particular sequence) in order to reduce tax and financial consequences, operational disruption, and achieve the desired group structure. As a result, they require careful, detailed planning and project management. Below we set out the key things to think about when planning a reorganisation.
Key considerations and actions businesses should consider when undertaking a reorganisation include:
Understanding the reorganisation
Fully understanding the specific details and rationale of the proposed reorganisation, and how it may impact existing structures and the reasons for which they were put in place.
The legality of all transactions contemplated should be confirmed by checking third party financing arrangements, material litigation and other key contracts and arrangements to ensure none of the involved entities' obligations are breached by the planned transactions.
Use of best project management practice is critical. Good organisation and project management skills help to simplify the process and ensure each step is completed correctly and in a timely manner.
The project planners should agree responsibilities, timetables, milestones, project management tools and processes up front, and have systems in place to manage budgets. A large project will often involve a number of different advisers, and lawyers in various jurisdictions as well as functional and operational specialists within the business being reorganised, and various workstreams will need to dovetail and work in parallel.
Invariably, these transactions will affect all areas of a group's businesses, from tax, finance and treasury, to HR, risk and compliance, insurance and governance, so the project manager will need to have processes in place to ensure all inputs from those areas are taken into account.
Clear steps plan
A well thought out and interrogated steps plan will help all parties involved understand the reorganisation and their role within it. Even the slightest of errors in the plan and the proposed actions to implement it can lead to increased costs, time and unintended tax consequences.
The right advisers
Engage the right advisers. Experienced tax, legal and financial advisers are essential to a smooth reorganisation.
Transfers of businesses and entities may require specialist legal advice such as in relation to employment or real estate.
For reorganisations spanning multiple jurisdictions, it is vital to instruct local counsel to ensure compliance with local laws and regulations; this can be best achieved through a full service, international law firm which can play the role of lead counsel, managing the various overseas lawyers' inputs and the interactions between them and having overall oversight of the legal aspects of the project.
Updating company secretarial work
Keep company secretarial work up to date. Company filings and accounts must be updated to avoid unnecessary delays in completing the reorganisation, whether that be delays to making distributions up the group structure or dissolving a dormant company. Up-to-date corporate, financial and share capital information needs to be provided to the project managers in a timely and organised fashion.
Line-up and brief stakeholders early.
With several entities involved (each with their own management teams, financing providers, third-party service providers, employees, trading counterparties) and all having a role to play in implementing the reorganisation, it is important to brief stakeholders early and ensure they are available to supply information and sign documentation as necessary.
Any key approvers such as a General Counsel, Tax Director or Financial Director or Business Managers should be made aware of the transactions without delay to deal with any concerns and get buy in at the earliest opportunity.
Internal time pressures
Be aware of internal time pressures. Reorganisations involve numerous moving parts and must be managed alongside the day-to-day trade and governance of the corporate group.
An acquisitive or listed group may have pinch points during its calendar when functional support is focused on other activities such as a major M&A transactions, a refinancing of bank debt, group audit or tax filings and the release of annual reports and other financial results.
Members of the management team will have a number of competing interests on their time, so it is necessary to build these factors into the project timetable.
Managing 'go-live' dates
Managing the "go-live" date of the new group structure is important. There may be a separate legal completion date and operational "go-live" date, particularly if the group wants to launch its new approach to its employees, customers – and in the case of a listed group, shareholders and the market more generally – so it is important to map out the transaction timetable with business input to ensure these timelines are aligned.
If you would like to discuss any of the issues raised in this Insight, please get in touch with your usual Osborne Clarke contact, or one of our experts below