UK groups, particularly acquisitive ones, are finding that they are now faced with complex, unwieldy group structures where the number of dormant or inactive entities in the group greatly exceeds those that are active. Therefore, we are increasingly seeing UK boards addressing corporate simplification as a priority. So why act now?
Fit for purpose?
The Government has recently produced a consultation paper in respect of Insolvency and Corporate Governance, and are seeking views as to whether stronger corporate governance and transparency measures are required in relation to the oversight and control of complex group structures. We wait to hear whether any recommendations are put forward to tighten the existing framework, however it demonstrates an increasing need for groups to consider whether their current structure is fit for purpose.
Want to reduce costs?
The cost benefit of eliminated unwanted entities in a group will naturally rank highly for any management team and with both tax and potential audit cost savings (including the administrative burden of dealing with a number of entities) and the costs in undertaking a simplification exercise can typically be recouped within 12 months.
Value your time?
Typically, management spend too much time dealing with the compliance and administration of entities that serve no commercial purpose, including reconciling and consolidating inter-group balances. By eliminating these entities, management can focus on more important day-to-day matters.
Other key benefits of corporate simplification include:
• Reduced risk of compliance failure
• Aligned legal and operational framework
• Return of capital, in turn unblocking potential dividend blocks
Keeping it simple
Whilst a group’s structure may be complex, the task of simplifying it need not be, and can be managed without requiring undue demands on internal resources, something which management is often concerned about.