In the last decade the world experienced increased economic growth in most parts of the globe. The COVID-19 pandemic is considered to be the ‘big reset’ for economies. Although, it also brought about the opportunity for businesses, industries and individuals to rethink their ownership structures, debt structures and exploit weaknesses they didn’t know exist.
The lockdown and its after-effects will force many companies and businesses to explore a change in their corporate structures and processes to optimise efficiencies or to downscale non-core divisions. Whatever the reasons, many companies will have to consider and implement a corporate restructuring strategy in the coming months after lockdown, largely driven by the uninventable changes in our economic landscape.
Taking a holistic view, including a financial and legal assessment of your business and corporate structure / ownership structure is the first step in mapping out your restructuring strategy plan.
Corporate structuring can take various forms, most notably the form of:
- a portfolio or organisational restructure, which may include, but not limited to, an acquisition, a merger, a takeover, leveraged buy-outs, schemes of arrangements or purchase of business assets; a divestment of assets, disposal of equity, disposal of the larger part of business assets; or
- a financial restructuring, that will result in the alteration or change of the capital structures of the business which can include a re-capitalisation of shares or share swaps or the conversion of debt into equity.
Whatever restructuring strategy and the commercial reasoning, the business will have to walk through a myriad of statutory and legislative provisions prior to implementation which may include, but is not limited to, company laws, anti-competition laws, takeover laws, listing requirements, financial laws and, of course, tax implications. A great deal of the restructuring strategy will involve the tax consequences, especially in relation to financial restructurings, where a tax benefit may be obtained and transfer pricing rules may come into play.
We therefore recommend that, in these trying times ahead and where local companies face severe liquidity problems and bankruptcy, that you approach your legal and financial advisors to decide on a feasible restructuring strategy. Your legal advisor can also assist you in exploring alternatives to restructuring, such as the rescheduling of liabilities, negotiating payment holidays or payment extensions, negotiating new rates of interest, etc.
Personal reorganisation and succession planning:
Likewise, the effect of the lockdown and a corporate restructuring will necessitate the revision of succession planning by individuals at the end of the ownership chains.
Expert reorganisation of your business entities will prove to be fruitless if your personal estate planning is not adjusted to coincide with the changes brought about by corporate restructuring and/or by the effects of Covid-19 on your estate. A proper will is a necessity to determine the devolution of your assets on your demise. Your will should be instrumental in:
- creating certainty and continuity for your heirs;
- avoiding unnecessary taxes; and
- mitigating unnecessary legal costs.
Any estate planning not rounded off with a well-drafted and properly planned will, more often than not, leads to consequences not intended by the planner. In the absence of a will, your hard-earned assets will be distributed in terms of the ironclad rules of intestacy.
A skilled and experienced estate planner can assist you in drafting a will which correctly interprets and implements your wishes, while avoiding the pitfalls, so often associated with deceased estates, such as unnecessary taxes, infighting amongst heirs – which often leads to litigation, as well as unviable or vague bequests, to name but a few.
As with any good corporate restructure, your personal restructuring will require several phases to finalise. Nonetheless, it cannot be overstated that your will is the foundation of your personal estate planning.
Astute estate planning promotes, amongst others, these three core concepts:
- Asset protection;
- Avoidance / postponement of unnecessary taxes.
These can be achieved by the meticulous use of trusts.
A properly drafted trust is an excellent tool in the arsenal of the legal adviser who provides estate planning and restructuring advice.
Now is the ideal time to re-evaluate your estate planning and revise your trust, will, and other documents that may form part of your estate planning.
Arrange a consultation with any of our corporate or personal restructuring specialists to assist you with any of the above.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)