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What is a Section 110 Scheme of Arrangement?

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 in shareholder disputes.

Section 110 Scheme of Arrangement in Detail

A Section 110 Scheme of Arrangement is a very useful way of reorganising a company between types of trade or classes of shareholders. Sometimes it is used where one type of trade is low risk whilst another type is high risk. A good example of low risk is a company owning property that is let out, compared to house building which can be high risk.

Here are two 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 (link to page) (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 this can be treated as a no gain/loss transfer.

  • 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 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 tax on the disposal of shares.

Tax Tip

It would be normal for you or your accountant to write to your tax office and get prior clearance outlining the ownership of the old company and the proposed ownership and structure of the new ones. They usually take up to three months to reply.

A Section 110 Scheme of Arrangement is a very useful way of reorganising a company between types of trade or classes of shareholders.

For further information regarding a Section 110 Scheme Arrangement or any other form of liquidation, contact us today.


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