By Georgie Blyth
Transforming group structures can generate significant benefits but can often prove complicated. A new approach to simplification from PwC could help.
The number of corporate groups initiating legal entity simplification (LES) programmes has grown rapidly recently – particularly groups with large UK and international corporate footprints. One important driver is that organisations are introducing new cloud-based enterprise resource planning (ERP) systems that charge on an entity-by-entity basis; however, many businesses are also focused on how they can reduce their risk and compliance burdens, lowering audit and compliance costs in the process.
Simplifying your corporate structure can reduce risk, free up time and money, and, therefore, pave the way for growth. However, organisations often find LES programmes complex and time consuming, with many taking years to complete; some have stalled altogether.
PwC has developed an alternative approach to help extract entities and move them into a third-party structure, from where they are then simplified. This gives you the advantages of immediate simplification while the entities are simplified and eliminated from outside your group. Key benefits include:
Under our new approach, surplus dormant entities are extracted from the existing group by selling them to a third party via a share purchase agreement for a consideration of £1 plus deferred consideration that is equal to net assets less fees and creditors. The entities are then liquidated from within the third-party structure. This is an off balance sheet approach to simplification which could help achieve overnight simplification.
This novel approach to LES will be of particular interest to organisations with certain key characteristics:
It is well suited to groups with a large structure that need to eliminate a certain number of entities by a certain date (for example, ahead of an ERP implementation or by the year-end).
The key outputs of the LES programme should include an overnight reduction in annual compliance costs for maintaining entities, an increased level of transparency and robustness of internal controls, and an increase in the speed at which you benefit from finance transformation.
If you are considering a LES programme or wish to hear more about the alternative approach above, please do not hesitate to get in touch.
Partner: UK Corporate and Commercial Legal Leader, PwC United Kingdom
Tel: +44 (0)7595 850056
