Section 110 Insolvency Act Reconstruction
Section 110 of the Insolvency Act 1986 allows a liquidator to accept shares in a new company or companies as part or full consideration for the transfer of the whole or part of the business of the company in liquidation.
This process can be used when shareholders wish to split the assets of a business into two or more companies for example in the situation where the shareholders want to carry on the business of the Company but want to do so separately. It may also be used as a means of separating loss-making activities on order to minimise risk to other parts of a business for example to separate a property investment division form a trading division.
Under a S110 reconstruction a new company or companies may be set up into which the business and/or assets of the company which is to be placed into liquidation will be transferred.
Upon liquidation the Liquidator will accept shares in the new company(ies) as consideration for the transfer of the whole or part of the business of the liquidated company. The Liquidator will then transfer the shares in the new company (ies) to the shareholders of the liquidated company.
Clearance can be obtained from HM Revenue & Customs in advance of liquidation that no chargeable gain will occur upon the transfer of the whole or part of the business to the new company (ies) but instead that the cost of the new shares acquired by the shareholders be deemed to be equivalent to the value of the business and/or assets transferred. The only tax charge that would then arise would be a capital gain if and when the shareholders dispose of their shares in the new company(ies).