Business managers usually like to avoid over complicating internal matters but moving assets within a group structure will always entail a number of formalities. Although less critical than in an acquisition of a target business at arms length, due diligence should still be part of this process to ensure that the relevant legal issues are properly dealt with.
Intra-group Transfers
An intra-group transfer is where a company transfers assets within the group to another company in the same group, usually for the purpose of reorganising the structure or the manner in which a group carries on its business. This may simply involve the transfer of individual assets, but is often related to the sale of a business or subsidiary company so it is important that managers can show a diligent approach has been taken.
Legal Title
The transfer or some assets requires particular procedures to be complied with in order to ensure the transfer of legal title is valid. For instance, the transfer of a real estate may involve a change in the identity in the legal owner of property; this will consequently give rise to a need for registration at the Land Registry which must be done in the correct form and within appropriate time limits.
Employees
In the event of a sale of business where there is not change of identity of the employer, all rights, duties and liabilities are automatically transferred. If there is likely to be a reduction in the workforce or changes to employment contracts, the effects of this should be captured by the due diligence process.
Third Party Consents and Liabilities
It is important to ascertain whether any third party consents will be required before assets are transferred. Real estate leases and some commercial contracts may contain change of control clauses or clauses restricting assignment. Such clauses may enable third parties to terminate or vary contracts so consent should be obtained prior to completion.
Due diligence should also highlight potential liabilities on both sides. Since the burden of a contract cannot be assigned, the seller may seek an indemnity from the buyer for post-completion breaches. Furthermore, where a contract prohibits assignment, the buyer may wish to seek a covenant from the seller to perform the contract on its behalf and take any necessary action to enforce it against the third party.
Regulatory Issues
Intra-group transfers may have potential regulatory implications such as mandatory statutory registrations or licences. This will be of particular relevance in heavily regulated industries such as pharmaceuticals, telecommunications, financial services, media and utilities.
Prior to any transfer it is important to determine whether approval or notification is required under statute and how to ensure that it is in place before the transfer. Any additional liabilities related to regulatory issues should also be uncovered.
Conclusion
Appropriate legal advice should be sought at an early stage before undertaking any asset transfers or reorganisations within a group structure. For more information please contact James Crichton via e-mail jcrichton@rollingsons.co.uk or by telephone on 0207 611 4848.
