Schemes of Arrangement

News and Blog

Hello and welcome to the next blog from Purnells on insolvency issues.


This week we are focusing on Section 110 Arrangements, which were introduced by The Insolvency Act 1986.


Section 110 Arrangements are used to demerge or partition a group of Companies or to separate out different activities undertaken by one Company. The scheme allows a Company that is "proposed to be" or "being" wound up voluntarily to split its trade into two or more companies (or LLPs). The Company must either be in a Members Voluntary Liquidation or intend to be in, which is known as a solvent liquidation.


The demerger or partition allows a company to focus on certain aspects of its business. In addition we have found this style of arrangement to be useful in settling disputes between shareholders over a Company's future direction. The shareholders can de-merge or partition the Company and split its activities between different companies and then trade on individually pursuing their own vision.



Under Section 110 of the Insolvency Act 1986 a liquidator may receive, in consideration of the sale of the whole or part of the company's business to a new or existing company, shares in that company (the purchasing company). Those shares can then be distributed among the liquidated company's members.


A properly structured Section 110 Scheme of Reconstruction benefits from the tax reliefs provided in Sections 136 and 139 of the Taxation of Chargeable Gains Act 1992 and will be tax neutral at company and shareholder level.


In terms of the benefits of a scheme of arrangement, we have already touched on one above; which is that the procedure is tax neutral, neither the transferee nor the shareholders will attract capital gains tax in relation to the distribution of the assets. (However, it is essential when carrying out this procedure that clearance from HM Revenue and Customs is obtained and that shareholders obtain their own personal tax advice.)


Other benefits include:


a) Advanced clearance for Tax and Stamp Duty, therefore there is certainty before the process commences

b) It is not a court procedure

c) More flexible than a statutory demerger

d) Trades can be transferred

e) Does not have to be a trading Company

f) Less costly than a section 895 Company Act 2006 Scheme of Arrangement, which is formally known as a s425 scheme.


In addition, another benefit is that the Company being liquidated is not required to be a trading company, which means that portfolios and properties can also be transferred.


It is also useful when considering wealth protection, particularly so in respect of succession, inheritance or divorce planning.


A s110 arrangement can be a convenient, tax-efficient option if your company is planning to sell parts of its business or certain business assets, without selling the entire company.


Using a Section 110 Arrangement, a company can also easily reorganise in order to sell unprofitable or unwanted business activities to a separate company, or to split its activities into several smaller companies with increased focus.


In order to start the Section 110 de-merger process, the following must have been done (this is not an exhaustive list but is more for illustration):


  1.   Ensure that the articles of the Company being/about to be liquidated allows for the transfer and issue of shares,


  1.   Ensure that no financing clauses will be activated as a result of the procedure,


  1.   Verify the Company's solvency and get the directors to swear a Declaration of Solvency,


  1.   Agree the nature of the re-structure agreement


  1.   Pass a special resolution (over 75% of the shareholder's agreement)


  1.   Sign an indemnity agreement to ensure all creditor amounts are considered.



Should you wish to discuss schemes of arrangement in more detail, please do not hesitate to get in contact. Telephone: 01326 340579, Email: