Legal feasibility checklist: Intra group transfer of UK trade and assets

This article provides a preliminary checklist of legal feasibility issues when transferring a UK trade and associated assets as part of a group reorganisation. It sets out some of the most common legal issues which typically arise and which can have a significant impact on the timing of such a transfer, or whether it can go ahead at all. It is not a substitute for legal due diligence.

1. Third party lenders and charge holders
Any third party charges over the assets to be transferred will need to be released, and a certificate of non-crystallisation should be obtained for assets which are subject to a floating charge. Consents may also be required under the terms of third party finance agreements.

2. Commercial contracts with third parties
These may include arrangements with third party customers, suppliers, licensors, licensees and joint venture partners. A risk-based review should be undertaken to assess whether the consent of the relevant counterparties must be obtained before the transfer goes ahead. If the third party has the right to terminate the agreement at short notice without cause, or if the contract has a short period left to run, then the decision may be taken not to seek consent before the transfer. The same view may be taken where the commercial value of the contract is not material in the context of the group.

3. Procurement arrangements
The transferor company may be an approved or preferred supplier in relation to procurement arrangements operated by government agencies or private sector bodies. If so, and if those arrangements are commercially significant, then they will need to be considered before going ahead with any transfer.

4. Regulatory licences and consents
Regulatory licences and approvals cannot usually be transferred as such, and arrangements will normally need to be made for the transferee to hold the relevant licences before the business is transferred. The timing depends on the type of licences involved – from data protection registrations at one end of the scale (which can be dealt with very quickly) to approvals by bodies such as the Financial Conduct Authority or overseas governments at the other end of the scale.

5. Leases
Where the transferor company holds leasehold premises, the landlord’s consent is likely to be required in order to transfer them.

6. Employees
If employees are to transfer over but will remain on the same terms and no redundancies are planned, then in general the requirements of English employment law should be relatively simple to comply with. In other cases, the obligations to inform and consult with affected employees can be more onerous – for example, if there will be changes in the job descriptions of staff engaged by the transferor or transferee entities.

7. Pensions
If the transferring company participates in a defined benefit pension scheme, then a transfer of trade and assets can trigger a statutory debt. Advice on this should be taken as early as possible in the process.

8. Contingent liabilities
The transferring company may be subject to contingent liabilities, for example in relation to guarantees, contaminated land or potential health and safety claims. The status of these liabilities will usually need to be assessed before a transfer goes ahead.

9. Ongoing litigation
If there is any material ongoing litigation (whether as claimant or as defendant), specific advice will be needed as to how to deal with that litigation.

10. Minority shareholdings
If the transferor or transferee company has minority shareholders, then additional consents may be required at board and/or shareholder level.

11. Historic corporate finance transactions
The transferor or transferee company may hold ongoing rights or be subject to ongoing obligations under historic corporate finance transactions. If so, then the impact of the proposed transfer will need to be reviewed. Relevant rights and obligations could include non-compete clauses (restrictive covenants), earn-out provisions or conduct of business provisions.

12. Distributable reserves
If the transferring company has zero or negative distributable reserves, then the relevant trade and assets may need to be transferred at market value rather than book value. However, it is often possible to create reserves by a reduction of capital, so in practice this issue rarely has a significant effect on timing.

13. Sale of part of a business
In some cases, an intra-group transfer will relate to only part of the business and assets of the transferring company. Although this does not usually, of itself, create additional timing issues from a legal perspective, it does require additional work to define what should go across, what is staying in place, and what the ongoing relationship between the two companies will be.

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