CSOP—requirements for the options: demergers
CSOP—requirements for the options: demergers

The following Share Incentives practice note provides comprehensive and up to date legal information covering:

  • CSOP—requirements for the options: demergers
  • What is a demerger?
  • Common reasons for demergers
  • How do demergers affect CSOP option holders?
  • Loss of value
  • No ability to take account of the variation in share capital
  • Performance targets may no longer be appropriate
  • Possible tax consequences
  • Impact on accounting treatment
  • How to deal with demergers
  • More...

What is a demerger?

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:

  1. a distribution in specie of the shares in the demerging subsidiary to the shareholders in the parent company—this is the most straightforward method

  2. a return of capital in the form of shares in the demerging subsidiary to the shareholders in the parent company

  3. a three cornered demerger, where the parent company shareholders receive shares in a new company set up to hold the demerged subsidiary, and

  4. through the utilisation of a section 110 of the Insolvency Act 1986 liquidation scheme

Common reasons for demergers

The commercial rationale for demergers may include:

  1. improving the effectiveness of the management of distinct parts of the company's trading business

  2. ring-fencing trade-specific liabilities

  3. enhancing shareholder value, and

  4. 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.

How do demergers affect CSOP option holders?

Often shareholders will be compensated by receiving a combination of shares in the

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