The following Share Incentives practice note provides comprehensive and up to date legal information covering:
A demerger is a form of corporate reconstruction.
It normally involves the division of a trade (or trades) carried on by a company (or group of companies) so that, after the demerger, the trading activities are run by separate management but remain under the control of all or any of the same shareholders.
There are a number of ways of achieving a demerger, these include:
a distribution in specie of the shares in the demerging subsidiary to the shareholders in the parent company—this is the most straightforward method
a return of capital in the form of shares in the demerging subsidiary to the shareholders in the parent company
a three cornered demerger, where the parent company shareholders receive shares in a new company set up to hold the demerged subsidiary, and
through the utilisation of a section 110 of the Insolvency Act 1986 liquidation scheme
The commercial rationale for demergers may include:
improving the effectiveness of the management of distinct parts of the company's trading business
ring-fencing trade-specific liabilities
enhancing shareholder value, and
dividing a trading business between conflicting groups of shareholders
For further information on share incentives considerations generally in relation to a demerger, see Practice Note: Share incentives considerations on a demerger.
Often shareholders will be compensated by receiving a combination
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