Introduction
It is quite common the world over for big companies to be organised in the form of groups of companies. Some of them can be so complex as to become an octopus. You normally have what is referred to as the “Group” or “Head Office” or “Holding Company”. Usually the “Holding Company” or “Group” has subsidiaries or associates or other related entities which in turn may also own their own subsidiaries, associates or other related entities. I recall my days as an auditor when we used to audit groups of companies, including the Holding Company and its subsidiaries, produce financial statements for the individual entities and then consolidate their financial statements into group results.
A group of companies may exist in one geographical location, such as a city or country, or may have presence in other jurisdictions. It is common for example for foreign owned companies in jurisdictions such as China, Europe, United States of America or South Africa to have subsidiaries or other related companies in Zimbabwe.
Restructuring a group of companies
This has wide application. Broadly this involves revisiting or re-arranging group companies in many aspects such as:
- Composition or make up of the group.
- Ownership of group companies.
- Reporting structure.
- How group companies operate, within the group and with external stakeholders.
- Ownership of group or common assets.
- Common or shared services.
- Staff and reporting
- Revenue generation
- Costs
- Geographical presence
Group restructuring may also be viewed in the context of:
- Mergers
- De-mergers
- Acquisitions
- Disposals
- Formation of new entities.
Reasons for corporate restructuring
There are usually various reasons for corporate or group restructuring. Some of them include the following:
- Improve financial performance.
- Risk management.
- Improve operational effectiveness and efficiency.
- For compliance purposes.
- To focus on specific markets
Key issues to consider in group or corporate restructuring
As explained above, group restructuring can take different forms and has wide application. Consequently, there are so many aspects of group restructuring that ought to be considered. I highlight some of them below.
- Clear strategic focus of the group. In other words there has to be clear vision for the group.
- Reasons for restructuring. The desire outcome has to be specified. There are some people who just want change even on things that are working and others who do not want to change things that are not working.
- It has to be clear what is to be restructured. Whether it is composition of the group, shareholding in the group, business of group companies, target markets, reporting structure, group trade, assets of the group, employees of the group, etc.
- Financial considerations such as funding required to implement the restructuring, financial benefits, financial models, financial reporting.
- Operational implications.
- Technological implications and integration of group systems.
- Tax implications for the group companies and the group as a whole.
- Legal implications, which can be many. Consideration has to be given to the legality of the restructuring, lawful instruments available to restructure, contracts required, compliance with applicable laws, any exchange control regulations for cross- border transactions, labour laws, regulatory approvals, shareholder rights and obligations, directors rights and obligations.
Key financial and legal issues to be dealt with in group restructure.
Finance and legal services are required in group restructuring, as summarised below.
Finance
- Check and test financial implications of the restructuring. Make projections and advise if the restructuring is beneficial.
- Develop financial models.
- Opportunities for cost containment.
- Advise of financial commitments and whether the restructuring can be financed.
- Pay attention to shareholding changes.
- Factor in effect of changes to be made to labour.
- Tax implications.
- Group financial reporting and audit.
Legal
There are many legal aspects to be looked at such the following:
- Legal compliance with applicable laws such at the Companies and Other Business Entities Act (Chapter 24:31).
- Key contracts such as for mergers, de-mergers, acquisitions, disposals, sale of shares, staff.
- Rights and obligations of shareholders.
- Roles of shareholders and directors.
- Labour laws.
- Regulatory approvals such as the Competition and Tariff Commission, Reserve Bank, IPEC and so on.
Conclusion
Group restructuring has wide application and there are many aspects to be looked at including financial and legal. It is advisable to use qualified and experienced professionals, especially those who understand different disciplines required by the group being restructured.
Disclaimer
This simplified article is for general information purposes only and does not constitute the writer’s professional advice.
Godknows (GK) Hofisi, LLB(UNISA), B.Acc(UZ), Hons B.Compt (UNISA), CA(Z), ACCA (Business Valuations) MBA(EBS, Heriot- Watt, UK) is the Managing Partner of Hofisi & Partners Commercial Attorneys, chartered accountant, insolvency practitioner, commercial arbitrator, registered tax accountant and advises on deals and transactions. He has extensive experience from industry and commerce and is a former World Bank staffer in the Resource Management Unit. He was recently appointed to sit on the Council of Estate Administrators in Zimbabwe. He writes in his personal capacity. He can be contacted on +263 772 246 900 or ghofisi@hofisilaw.com or gohofisi@gmail.com. Visit www//:hofisilaw.com for more articles.
