The following Share Incentives guidance note provides comprehensive and up to date legal information covering:
A demerger is a type of corporate reconstruction that divides businesses carried on by a company (or group of companies) so that, after the demerger, the trading activities are run by separate management but remain, at least initially, under the control of all or any of the same shareholders. This is often done in order to improve the management of distinct parts of the company's trading business or to ring-fence trade-specific liabilities or enhance shareholder value (if the sum of the parts is valued at more than the conglomerate).
There are a number of ways of achieving a demerger, including:
a distribution in specie in the form of a dividend of 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 business, and
a demerger through the utilisation of a section 110 of the Insolvency Act 1986 liquidation scheme
A scheme of arrangement is also often involved as part of the demerger process.
For more details on the share incentives considerations on a scheme of arrangement, see Practice Note: Share incentives
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