When to reorganize
There are numerous benefits to a group reorganization, including reducing operational inefficiencies and increasing value, increased agility and competitiveness, and making way for further growth and change.
However, it is also common for group reorganizations to go badly off-track requiring expensive remedial action.
How legal can help
The legal team on a reorganization project plays a key role in its successful completion by helping to navigate complex laws and multiple stakeholder issues. They not only provide the legal advice and prepare the legal documents, but they also understand the interaction and alignment needed between tax, accounting, finance, human resources, and other parts of the business.
Here are four tips for a successful reorganization project first time around:
- Have the right mindset: simplifying doesn’t necessarily mean simple
Large projects often involve multiple group entities in numerous jurisdictions. That is a lot of stakeholders, advisers and logistics to coordinate. Technology can help here and is developing fast. Tools are available for planning and tracking projects and making collaboration easier. E-signature platforms can also be used to streamline the signing process, although the rules in each jurisdiction should be checked.
Tip: Start off on the right foot with careful, detailed planning – allow time to explain, and listen to, stakeholders at the outset and consider key timings and logistics early on.
- Complying with legal detail
Intragroup reorganizations typically involve complex mandatory legal processes. If not followed, transactions can be void and need to be unwound and, in some cases, criminal sanctions can apply. A good understanding of the procedures in respective geographies, and careful implementation, will be key. This can be especially important if late changes happen and legal steps need to be amended at the last minute.
Developments in the law need to be monitored and a “same as last time” approach may not always work. Companies should consider the changing global legal landscape, where increasing regulation is being introduced in various jurisdictions to combat issues such as national security and new sophisticated criminal activities.
Tip: Make sure you ask the right questions and understand the legal issues in all jurisdictions. Taking time to spot issues at the outset and at other key stages in the project can save time, expense, and the commercial ramifications of any remedial action later on.
- Intragroup does not mean no scrutiny: Usual standards of care and diligence are essential
A common misconception is that there will be no scrutiny of intragroup transactions; that all transactions are between “friendly” group parties and there is no need to document and evidence as thoroughly as a third-party transaction. In fact, auditors and tax authorities can (and do) scrutinize transactions and raise queries. Transactions may also be open to scrutiny further down the road by potential buyers as part of a due-diligence exercise or in the event of insolvency.
Tip: Challenge your own thinking and make sure you allow time to consider the concerns of the different specialists working on the project.
- Corporate governance
Corporate governance standards have been in the spotlight recently, following several large-scale business failures. The laws of many jurisdictions include baseline requirements for corporate conduct and record keeping. These are sometimes supplemented by codes of best practice for corporate governance.
Tip: Make sure you comply with the laws, codes and corporate policies that apply in your case. Intragroup transactions should be documented correctly, and comprehensive, accurate records kept.