Q&As

Would a newly incorporated company which is to become the parent company (Holdco) of a group following an intra-group reorganisation be classified as a ‘bona fide arms length purchaser’ in connection with the potential exercise of drag-along provisions?

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Published on LexisPSL on 28/04/2017

The following Corporate Q&A provides comprehensive and up to date legal information covering:

  • Would a newly incorporated company which is to become the parent company (Holdco) of a group following an intra-group reorganisation be classified as a ‘bona fide arms length purchaser’ in connection with the potential exercise of drag-along provisions?
  • Case study
  • Bona fide arms’ length purchaser

Would a newly incorporated company which is to become the parent company (Holdco) of a group following an intra-group reorganisation be classified as a ‘bona fide arms length purchaser’ in connection with the potential exercise of drag-along provisions?

Case study

This Q&A considers a situation where a company (Company A) has drag along provisions contained in its articles of association and Company A is conducting an intra-group reorganisation whereby Company A’s shareholders will transfer all their issued shares held in Company A to a newly incorporated company (Holdco) in consideration for the issue of shares by Holdco to Company A’s shareholders. In the above circumstances, this Q&A considers whether Holdco could be deemed to be a 'bona fide arms’ length purchaser' for the purposes of the relevant drag along provisions in Company A’s articles.

A drag along is the process by which a majority shareholder or shareholders, can achieve a sale of all of the shares in the company (including those shares held by other shareholders) to facilitate a full exit. It is also sometimes referred to as a 'come along'. The exit is often drafted so that the party offering to acquire the shares from the company’s shareholders (the offeror) is a 'bona fide arms’ length purchaser' or as in the case of the Precedent: Drag and tag along provisions—articles, a 'bona fide third party'. These

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