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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.
Hive downs are generally more common in UK corporate practice than hive ups.
Simplified corporate structure - by transferring assets and liabilities between companies, businesses can streamline their operations and reduce administrative costs.
Tax efficiency - a group might hive up a subsidiary's business to reduce administrative costs and simplify tax compliance, particularly if the subsidiary and parent could benefit from group relief for tax purposes. This can help with loss sharing and optimise the group's overall tax position.
Borrowing advantages - when seeking group-level financing, lenders might prefer having valuable assets and operations held directly by the parent company rather than buried in subsidiaries. A hive-up can help improve the parent's balance sheet and borrowing capacity.
Preparing for sale - hiving down a particular business unit can make it more attractive to potential buyers.
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.
Protecting assets - segregating assets and liabilities can protect the parent company from potential risks associated with the transferred business.
Succession planning - family businesses use hive-downs to create separate entities for different family members to manage, while maintaining overall family ownership through the parent company.
Tax - each type of transaction requires careful tax planning. The wrong structure could trigger unnecessary tax charges or lose valuable tax attributes.
Consents and buy in - board approval and possibly shareholder consent needed. Assets must be legally transferable. Customers, suppliers, and employees need careful communication to prevent disruption to business relationships.
Employee issues - TUPE regulations often apply when transferring a business, meaning employee rights must be protected and proper consultation conducted.
Contract issues - existing contracts need reviewing to check if they allow transfer or require third-party consent. This includes leases, licenses, and customer agreements.
Valuation issues - determining the correct value for transferred assets can be complex, especially with intangible assets or ongoing businesses.
A hive up or hive down is a complex legal process. 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.
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