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Corporate Simplification Case Study: Interview with Sean Croston, Grant Thornton

Group Reorganisations

25 September 2015

Sean Croston has specialised in group simplification work for many years, and he is head of the Corporate Simplification Group at Grant Thornton UK LLP. Sean has recently completed the latest phase of a large simplification project, with the successful elimination of 24 group companies.

The group is a large supplier of materials to the construction industry, with UK revenues in excess of £700m, and operations in the UK and overseas. The group has traded for over a 100 years and has been involved in a number of acquisitions and mergers which resulted in a complex corporate structure.

We caught up with Sean to discuss the practical issues of the assignment from the liquidators’ point of view, and what he saw as the key factors to a successful simplification project.

Team structure

One of the key success factors was the sponsorship of a senior group director (head of legal) who ensured that the project was resourced properly, with a strong project leader and project team comprising individuals from various corporate departments, including company secretarial, tax, finance and legal functions.

Over the years I have seen many projects stall due to lack of resource or other priorities, which is understandable in the dynamic business environment, but it is the projects that have the backing of senior personnel that usually have the best chance of success. The ability of the client project team to adapt to changes in personnel is also key. This can be a challenge to the progress of a project particularly when the new team member is at the forefront of the project and needs to be supported with the steep learning curve they face.

Drivers for the project

There were a number of drivers for the project, including:

  • a change in tax rates which meant that funding structures of the group needed to be reviewed;
  • the growing concern regarding the lack of corporate knowledge in respect of legacy entities, particularly those arising from historic acquisitions; and
  • the desire in any event to improve corporate governance in the group with a more simplified structure to ease reporting processes and reduce administration time and cost.


Another key factor was that the group had introduced a robust methodology, including a due diligence process requiring input from a number of departments. This included:

  • a review of the group structure and allocation of entities into batches for elimination, based on the nature of any residual assets and liabilities to be dealt with, outstanding tax issues to be resolved, or dependency on other entities being eliminated first. In this case batch sizes were between 7 and 9 entities (although we have dealt with much larger batch sizes in previous phases) which was considered manageable by the project team and enabled efficiencies to be obtained in the formal liquidation process;
  • completing bespoke due diligence checklists; this was crucial as it provided structure and methodology to the project, with each entity having to be cleared by each department before being passed through to the next phase. These checklists are important for a number of reasons:

    • to identify assets which could otherwise be overlooked, e.g. IPR/Patents, land strips etc;
    • to highlight any liability issues, commonly legacy pension obligations, unexpired lease terms, contingent risks under historic sale/purchase agreements, personal injury claims etc;
    • importantly, the checklists also provide documentary evidence to support the directors in making the required statutory declaration of solvency;

  • a balance sheet review, including tax review, and completion of pre elimination transactions i.e.:

    • removing cash/transferring any other residual assets (usually via intercompany account);
    • stripping value by completing pre elimination dividends, which required capital reductions in some cases.

Maintaining a flexible approach

It is not unusual to see companies fall out of the batch process during the review phase, but it is important that momentum is maintained. In this case, the legal team identified a risk of legacy employee injury claims and, whilst it was felt that this could be managed, the affected companies were moved into a later phase to enable a full review to take place.

We regularly come across this issue which is often seen as a blocker to the elimination, however there are a number of practical steps that can be taken to unblock this, including reviewing and dealing with claims before elimination, checking the insurance and claims history and potentially providing a group indemnity, or obtaining insurance cover.

Challenges can arise when unusual companies are encountered. In one such case, an entity which had been established under old, very specific, government provisions could not be eliminated under any of the "normal" processes and guidance from the relevant government department would need to be sought. After due consideration, the client deemed this to be not cost-effective and took this entity out of the project scope altogether.

The director/shareholder meetings

The client had also carefully planned the director and shareholder meetings to place the companies into liquidation and to appoint the liquidator. This can be challenging given the seniority of individuals required to sign the relevant documents, and was made much easier in this case as the number of directors of each entity had been reduced to one or two common directors (but check the articles!). These changes were also completed well in advance of the completion meeting to ensure that the declarations of solvency were accepted for filing at Companies House.

All the formal appointment documentation was prepared and set out in the meeting room in a logical sequence. In some ways this is not dissimilar to the completion meeting of a large corporate transaction, with the room full of documents, all requiring signing by directors and shareholder representatives who are often the same person in different capacities. This part of the project is key when dealing with larger batches, as the senior directors (often including the project sponsor) may not have been very close to the detailed work undertaken, and they will gain confidence and assurance in the process if the meeting is well structured and coordinated.

There were 5 or 6 separate documents for each entity, plus indemnities and transfer forms/deeds of assignments for a number of entities which required an immediate distribution by the liquidator. Whilst in practice there are a number of ways of sequencing the documents, in this case given the volumes involved it was helpful that the directors made all the declarations of solvency first so that the independent solicitor or notary, who is required at this stage, did not have to sit through the whole completion process.

The completion meeting, from start to finish took just over an hour and everything ran like clockwork. Finally, it was just a matter of the liquidator and the project team ensuring everyone had either the originals, or copies, of the relevant documents and filing responsibilities agreed. And then there was opportunity for a pause for breath, before moving swiftly on to the next batch of companies!

Final thoughts

The above summary provides a high level view of how a successful project is run. It is also important to highlight that good communication is key, both internally within the project team and senior management, but also with the liquidator and his team who are able to advise and support as issues arise, particularly in the due diligence phase. Furthermore, in my experience, the most successful corporate simplification programmes have been the ones that clients now treat as business as usual, rather than one off special projects.

Sean Croston is head of the Corporate Simplification Group at Grant Thornton UK LLP and can be contacted at sean.croston@uk.gt.com or on 0207 728 3172.

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Article by
Paul Sutton
LCN Legal Co-Founder

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