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Types of exempt demerger

An exempt demerger can be either:

1. Ìý

   (a)ÌýÌýÌýÌý direct (ie the parent company pays a dividend in specie of the shares of the subsidiary that is to be demerged), or

2. Ìý

   (b)ÌýÌýÌýÌý indirect (ie the parent company declares a dividend which is satisfied by the transfer of a 75% subsidiary (or the assets of a trade) to a Newco). In consideration for the receipt of the shares in the subsidiary (or the trading assets) Newco issues shares to the shareholders of the parent company

It is not possible to transfer a trade directly to the shareholders of the distributing company: it must remain within a company and if the intention is to demerge a trade or division, the indirect route must be followed.

The direct demerger is the most straightforward means of effecting a demerger.

Example

Assume we have a holding company with two subsidiaries. We also have two separate groups of shareholders. The plan is to take the two subsidiaries out from under the holding company so that Subsidiary