Addressing excess organisational complexity
Many organisations are growing and expanding rapidly in their pursuit of growth and market share. In the process, they incorporate new entities, acquire businesses and companies, and introduce new and complex processes.
As they expand, they may also find themselves with more than one entity or process in a similar business that serves the same clients. When a major restructuring is being contemplated, these organisations often find themselves with redundant entities and processes which are not cost-effective, inactive, and serve no economic purpose.
These redundant entities and processes waste management time and incur recurring costs in maintaining the statutory books and records, and in preparation and filing of statutory accounts and various returns. They clutter the group structure and may also lock up valuable capital resource.
Meeting Your Needs
To address the issue of excess complexity, PwC can help provide organisations a solution through Corporate Simplification – a process by which we advise management on streamlining group structure with the operational requirements of the business. This may involve the transfer of businesses or assets from one entity to another, or the rationalisation of processes. It can involve an exit process to eliminate redundant entities and, where appropriate, a value extraction process to release capital locked in the balance sheets of individual group companies.
The complexity of the assignments which we undertake ranges from simple exercises of reconfiguring processes and procedures, and liquidating dormant entities to managing complex projects involving the merger of entities, transfer of businesses, assets, liabilities and employees between entities, across different jurisdictions. Often, the optimal tax structure and legal requirements will also have to be considered. Depending on your requirements, we can either support your in-house corporate simplification team, or undertake the whole assignment, with minimal involvement from you.
Corporate Simplification requires careful planning. PwC’s approach to Corporate Simplification comprises the following three phases:
Phase One – Analyse and plan
The aim of Phase One is to identify the relevant issues which must be addressed in order to reorganise the current group structure to an optimal group structure in line with operational requirements.
Phase Two – Implement solution
The analysis and planning or the reorganisation plan developed in Phase One will detail issues to be resolved in this phase. The complexity of issues involved will depend on a number of factors including the size/type of business and the number of redundant processes in operation. For example, if we are to close down a business, we need to consider how long it has been since it had actual business activity and the jurisdictions involved. Some of the issues may involve applications for regulatory approvals, transfer of business and employees, realisation or assignment of debtors, paying or novation of creditors, de-registering for novation of contractual obligations, and Goods and Services Tax.
Phase Three – Formal liquidation of redundant entities
Having resolved the issues identified, particularly in the area of processes, any redundant entity identified will now be ready for liquidation. This process involves a solvent winding up, also known as Members’ Voluntary Liquidation (MVL). MVL is a regulated process based on the Singapore Companies Act, Cap. 50, or the relevant legislation in the respective jurisdictions.
Once appointed and operating within the statutory framework, the liquidator will execute the formal liquidation, which comprises three main elements:
- Realisation of assets
- Seeking out and settlement of creditors’ claims
- Distribution of the surplus (of assets less claims) to shareholders
Investment Holding Company
- Reorganising Group Structure to Realise Substantial Operating Cost
PwC was appointed as project manager in a Corporate Simplification exercise involving the reorganisation of an investment holding company. The ultimate holding company rationalised that they could save substantial operating cost if the group structure was reorganised by eliminating the intermediate holding company and transferring its businesses to other entities within the group.
Our Tax practice reviewed the tax position of the company and the group, and advised the client on the optimal tax structure. We also reviewed the potential Stamp Duty and Goods and Services Tax implications, and successfully applied for the necessary waivers of stamp duty and taxes. The waiver resulted in substantial savings for the client.
We also worked with the different functions within the entity and assisted in addressing the operational issues associated with the winding down process such as termination of employment, migration of the IT function, unwinding of derivatives positions, novation of outstanding contractual obligations, assignment of debtors, sale of fixed assets and transfer of the investments, among other things.
The controlled winding down was completed successfully without any interruption to business and the entity was subsequently liquidated using the MVL process.