Transfer to Newco

The following Restructuring & Insolvency practice note provides comprehensive and up to date legal information covering:

  • Transfer to Newco
  • Key parties
  • Mechanisms
  • Key issues
  • Fully consensual deal
  • Schemes of arrangement
  • Restructuring plan
  • Pre-pack administration
  • Formal enforcement of share pledge
  • Appointment of receiver
  • More...

Transfer to Newco

A popular restructuring method is to transfer the company's assets or business to a newly formed company (Newco). Essentially the good assets and business(es) are cherry-picked and transferred into Newco. In return for reducing or cancelling their debt claims against the company (and the rest of the group), financial creditors may exchange:

  1. debt in the company for debt in Newco

  2. debt in the company for equity in Newco, or

  3. debt in the company for debt and equity in Newco

The transfer reduces/extinguishes liabilities on the company's balance sheet liabilities. In debt for equity swaps, it allows creditors to take some of the upside following a restructuring once Newco generates a profit (as equity holders, they are entitled to dividends once there are sufficient distributable reserves) or on any subsequent sale (see Practice Note: Debt for equity swaps).

It is vital to obtain a robust valuation as this shows where value breaks; that tranche will expect to receive the most equity post-restructuring (see Practice Notes: Types of valuation for R&I lawyers and Where the value breaks and negotiating strength). Creditors who are out of the money are typically left behind in the company (often this includes unsecured creditors and landlords).

Key parties

The support of various parties may be required:

  1. existing shareholders—likely to have only a small share in Newco or no Newco shares at all, so

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