The quick answer
This is a solvent liquidation process that allows you to reorganise a company into two or more new companies in order to allow the trade to be split or the ownership of the shares to be split.
It is often used to split up inherited family companies (and these are often farming businesses) where each branch of a family has a different view on how to run the business.
A section 110 Scheme of Arrangement includes using a Members Voluntary Liquidation.
In more detail
A Section 110 Scheme of Arrangement is a very useful way of splitting up a company between types of trade or classes of shareholders.
It can be used to separate shareholders from each other so they only own their part of the business. Typically this can be an inherited second or third generation family farming business.
Sometimes it is used where one type of trade is low risk whilst another type is high risk. A good example of this is a company that carries out speculative property development such as house building (which is higher risk) compared to owning a portfolio of rented property which is low risk. The share holders maybe the same in both of the two new companies.
Here are some further examples:
- Example one – How to split the company into two trades
A business might have two types of trade, for example – hiring and selling cars. The business can be split into two new companies one just dealing in buying and selling cars and the other in just hiring cars. The old company is put into liquidation using a Members Voluntary Liquidation (this is a Solvent Liquidation) and the respective assets transferred to each new company.
There are various tax conditions to comply with, but essentially as long as the shareholders stay the same overall this can be treated as a no gain/loss transfer for tax purposes – so no tax.
- Example two – Shareholders wanting to go their own way
Two families own a company and decide they can no longer work with each other. They can decide to liquidate the company using a Members Voluntary Liquidation and split the business into two with each family owning one new company outright. The old company is dissolved after the asset transfer and the two new companies are separate legal entities.
This can be done without paying any capital gains tax, income tax or corporation tax on the disposal of shares.
We also have a well used system that avoids any Stamp Duty or SDLT on shares and property in a section 110 Scheme of Arrangement.
We normally apply for tax clearance for you before carrying out a Section 110 Scheme of Arrangement. This means we write to HM Revenue and Customs setting out the detailed plan and ask them to confirm that no tax is due. It usually takes them up to 30 day to give this clearance.
A SECTION 110 SCHEME OF ARRANGEMENT IS A VERY USEFUL WAY OF SPLITTING UP AND REORGANISING A COMPANY BETWEEN TYPES OF TRADE OR CLASSES OF SHAREHOLDERS WITH NO TAX DUE AT ALL.
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