Most common legal pitfalls in group reorganisation projects

Like any other projects, group reorganisations require an appropriate level of planning to make sure that they are implemented smoothly. This includes checking legal issues involved.

Here are some of the most common legal pitfalls:

1. ‘Backdating’ documents – which can constitute fraud
2. Transferring assets at less than market value or book value (depending on the circumstances)
3. Failing to take account of the separate interests of all the companies participating in the arrangements
4. Meetings which are inquorate (invalid) due to conflicts of interest affecting directors
5. Paying dividends without sufficient accumulated realised profits, and without “relevant accounts” to back them up
6. Unlawful return of capital
7. Relying on a ‘solvency statement’ reduction of capital before the reduction has been registered with Companies House
8. Striking off companies without carrying out due diligence to identify assets and liabilities
9. Intra-group transfers triggering a pensions debt
10. Intra-group transfers allowing third parties to terminate contracts arrangements early due to breach of change of control or assignment provisions. Common examples include commercial contracts and leases
11. Failing to obtain regulatory approvals for transferee companies
12. Failing to maintain offshore central management and control through telephone board meetings or inquorate meetings
13. Registering share transfers before the relevant share transfers have been stamped or adjudicated as not chargeable to ad valorem stamp duty
14. Not releasing third party charges over assets intended to be transferred intra-group