Typical steps of a return of capital demerger might include:
- A new holding company (new holdco) is inserted above the existing company via a share for share exchange. Normally, new holdco will have share capital equal to the market value of the combined business interests of the existing company.
- The property interests of the group are transferred to new holdco.
- The existing company (containing the trading activities) is distributed to a new company (newco) and at the same time new holdco reduces its share capital by a number of shares equal to the market value of the trading activities. Newco issues shares to the shareholders of new holdco as consideration for the distribution.
The following are situations where a return of capital demerger could be helpful – separation of trading activities from investment interests (eg, property), where there is an intention to sell the trade or one of the trades, and in separations or divorce settlements, or where there is a disagreement between shareholders.
