Solvent liquidation: Getting rid of the clutter
We all know how much more efficient we can be with a clear desk and unnecessary meetings scratched from our diaries. So, think how much more efficient a business would be if this same decluttering were applied to corporate structures?
Streamlining overly complicated structures and simplifying your business can reduce costs, sharpen agility and give management a clearer line of sight over operations.
Solvent liquidation is an increasingly important part of the armoury of corporate restructuring. Here in the Channel Islands, this includes winding up funds that have become sub-scale or non-core. The trend is set to accelerate as investor demands evolve and managers seek to increase their private markets presence or focus on environmental, social and governance (ESG) and seek to close down older funds.
Weighed down over time
Why then have structures often become so complicated? Given the pace at which many Channel Islands’ businesses have grown in recent years, they may not have had time to think about the future impact of the corporate labyrinth they’re creating. This might be entities set up for historic tax purposes that are no longer useful as tax regimes have changed. It might also be operations acquired or set up by people who have now retired or moved on.
Jettisoning the deadweight
The benefits of getting rid of all this deadweight are clear:
Reduces costs and time
Too many entities within your structure can result in costly processes. It can also lead to duplication of effort. Solvent liquidation would enable you to focus more time and money on areas of your business with the strongest value and growth potential.
Reduce hidden risks
Generally the higher the number of legal entities the more difficult the business is to oversee and the higher the risk of non-compliance with laws, regulations and reporting requirements. Rationalising the structure would thus improve visibility and reduce the chances of unwanted surprises.
A simplified structure paves the way for transformation
A streamlined structure can lay a platform for transformation by strengthening agility and simplifying decision making.
These attributes are now more critical than ever as your business grapples with the new realities emerging from the pandemic. You’ll be able to bounce back quicker, focus resources on transformation and bolster resilience in the face of disruption and shocks.
Realising the benefits
How then can you make the most of this opportunity to streamline your structure? In my experience, three key priorities stand out:
- Judge what can go
Clear planning is essential. Go through your business to identify entities that are redundant now or could be soon. - Draw on experienced project management
It’s important to assemble a dedicated, experienced team to project manage the exit. This experienced eye can help to smooth the process and avoid some of the common pitfalls. Priorities include carrying out a thorough review of the books and records to ensure that all assets and liabilities have been dealt with appropriately (including any contingent assets or liabilities). - Consider external support
Your business may have limited experience of solvent liquidation. Getting up to speed can be difficult. Bringing in specialist support not only helps to reduce the calls on management time, but also deal with issues that require international reach such as tax liabilities in different jurisdictions.
If you would like to know more about the options for streamlining your business or how PwC can assist with evaluation and exit, please feel free to get in touch.
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