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A demerger agreement is a formal legal contract that deals with the separation of part of a company’s business or assets into either a new or existing company under the same ownership. It enables the transfer of all or part of the company’s assets, liabilities, employees and operations to a separate entity.
We act for large and small companies, groups, holding companies, directors, investors, and shareholders including the following. We have expertise in complex corporate restructures and demergers, providing practical, cost effective advice and full support from pre-agreement planning to post-demerger governance. We assist with :-
Structure and Planning
Legal Documentation and contracts
Shareholder and Court Processes
Due Diligence/Identification of Assets
HMRC Clearance
Employees
A key part of a successful demerger is due diligence and understanding what assets are being transferred and which parties would be affected. As well as the shareholders affected parties could include creditors, lenders, employees, and contracting parties. Once such parties have been identified and evaluated we will need to ensure that all necessary consents, notifications, and approvals are negotiated and in place before the transaction documentation is finalised. Early identification, engagement and negotiation with these stakeholders is vital to prevent disputes, delays, or regulatory issues.
Demerger agreements often involve multiple stakeholders, each with their own interests:
Parent Company / Original Company – responsible for transferring assets, liabilities, and operations.
New or Receiving Company – ensures clarity over transferred assets, liabilities, and employees.
Shareholders – concerned with valuation, consideration, and approval of the transaction.
Employees & Employee Representatives – TUPE compliance and pension protections.
Creditors & Lenders – often a major complication, requiring consent, waivers, or renegotiation.
Regulatory Authorities – Companies House, HMRC, and sector regulators for approvals and compliance.
Professional Advisors – solicitors, accountants, and tax advisors guiding the process.
Before drafting a formal agreement, pre-agreement work is critical:
Identify Third-Party Interests – creditors, lenders, landlords, and contractual counterparties affected by the demerger.
Preliminary Approvals & Notifications – early engagement with creditors and contract counterparties to secure consents or waivers.
Due Diligence & Risk Assessment – financial, legal, and operational review to identify liabilities and compliance issues.
Structuring & Negotiation Strategy – selecting the demerger type (hive-down, spin-off, division transfer) and agreeing internal principles.
Pre-Drafting Co-ordination – align the parent company, new company, shareholders, and advisors on structure, timelines, and approvals.
Scope of demerger: assets, liabilities, employees - it is vital to identify the scope of what is to be transferred so as to ensure that any potential problems are identified and dealt with in principle before the documentation is finalised.
Consideration/share allocation - the valuation of and the consideration to be paid for the assets to be transferred is critical as it has ramifications for HMRC and any potential creditor claims.
Employee and pension arrangements - as with any business transfer the transferring employees are entitled to be transferred subject to and with the benefit of their current contract.
Warranties and indemnities - is the transferor prepared to provide warranties and/or indemnities as to the assets to be transferred to provide additional protection to the transferor?
Covenants and restrictions (non-compete, confidentiality) - the transferee will need to be assured that all existing employee covenants and restrictions will apply following transfer.
Approvals and conditions precedent - some of the assets to be transferred may require third party consent to be transferred with such consents needing to be obtained prior to any transfer.
Completion and post-demerger arrangements - the transfer documentation will specify what the transferor is required to provide to the transferee on completion and also deal with the post completion relationship between the entities.
Dispute resolution mechanisms - a standard form of expert determination procedure will be required to avoid and legal disputes.
Missing creditor consents or regulatory approvals.
Incomplete asset/liability identification.
Employee/TUPE and pension non-compliance.
Tax inefficiencies or unanticipated liabilities.
Poorly structured transitional arrangements.
Contentious Areas Consideration/share allocations - the value of the transferring assets and the price paid for them is likely to be contentious between the transferor and the transferee and an early identification of the standard valuation process should minimise the risk of any disputes.
Employee and pension liabilities - often constitute the largest potential cost and risk for any transferee and as such it is critical that such liabilities have been identified and properly evaluated as part of the due diligence process.
Warranties, indemnities, and liability caps - the principle of buyer beware applies to these transactions and as a consequence the transferee will be looking to the transferor to provide additional contractual protection by way of warranties and indemnities. Such additional protection is likely to be vigorously opposed by the transferor. We can identify standard market practice and review any warranty insurance protection open to the transferors thereby preventing any disputes arising.
Completion conditions, including creditor consents - third party consents to the transfer of assets are often overlooked but a failure to identify and obtain such consents could invalidate any transfer.
Post-demerger support and IP licensing - following completion of the demerger the transferor and transferee are separate legal entities but there is often a requirement for the transferor to provide a level of ongoing business support and also licence any Intellectual Property for use by the transferee. Having acted for both transferor and transferee enables us to identify standard market norms and avoid any substantive disputes.
Demerger of the business and assets of a commercial property development group to facilitate a Management Buy Out, including the transfer of 45 employees, the assignment of a number of Joint Venture Agreements and Grant Funding Agreements,
Demerger of a Lloyds insurance syndicate to facilitate a restructure of assets and liabilities.
Demerger of a major regional construction and development company to separate commercial and residential assets to enable external investment in the commercial property assets.
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