Hiving up and hiving down - meaning, purpose, formalities

What is hiving up and hiving down?

Hiving up and hiving down are corporate restructuring techniques used to reorganise business assets and liabilities within a group of companies.

• Hiving up - involves transferring assets and liabilities from a subsidiary company to its parent company.

• Hiving down - transferring assets and liabilities from a parent company to a newly formed subsidiary company.

Why hive up or hive down?

These corporate transactions take place for various reasons, including:

• Simplified corporate structure - by transferring assets and liabilities between companies, businesses can streamline their operations and reduce administrative costs.

• Tax efficiency - careful planning can lead to tax advantages, such as deferring or reducing tax liabilities.

• Protecting assets - segregating assets and liabilities can protect the parent company from potential risks associated with the transferred business.

• Making inward investment more attractive - by creating a separate legal entity, businesses can make it easier to attract investors or secure financing for specific projects or divisions.

• Preparing for sale or acquisition - hiving down a particular business unit can make it more attractive to potential buyers.

Legal steps and work involved

The specific legal steps involved will depend on the complexity of the transaction and the jurisdiction. However, some general steps include:

1. Due diligence – necessary for commercial reasons but also to demonstrate an arm’s length approach to the transaction.

2. Valuation – it’s important to have a professional and documented fair market value for assets and liabilities.

3. Transfer Agreement - prepare a detailed agreement outlining the terms of the transfer.

4. Shareholder and creditor approvals - obtain necessary approvals from shareholders and creditors, if required.

5. Companies House formalities – filing required documents to register the changes.

6. Transferring legal title to assets and liabilities

7. Employment law aspects -  employees may need to move to the target company.

8. Contractual issues -  contracts may need to be varied or novated.

Example 1: Hiving Up

A parent company with two divisions (A and B) decides to simplify its structure. It transfers the assets and liabilities of Division B to the parent company. This reduces the number of legal entities and streamlines operations.

Example 2: Hiving Down

A parent company wants to sell a specific business unit (C). It transfers the assets and liabilities of Unit C to a newly formed subsidiary company. This makes the subsidiary more attractive to potential buyers and facilitates the sale process.

Contact us

Hiving up and hiving down are complex legal procedures. It is essential to seek experienced legal advice to ensure compliance with all relevant laws and regulations. We can guide you through the process and help you achieve your business objectives.