Change of domicile
A UK listed plc might consider changing its corporate registration and tax domicile for a variety of reasons. Even after the 2000 budget this remains one possible practical, long term option which might be considered by UK corporate groups to avoid some adverse tax consequences of the UK tax net.
How to change domicile
Essentially, change of domicile involves a non-UK company (Offshore Co) being put in place as the new holding company of an existing UK company (UK Co) and its group. This could occur a number of ways.
(a) Under a court approved scheme of arrangement pursuant to section 425 of the Companies Act 1985 (CA 1985), linked with a court approved reduction of capital under section 135 of the CA 1985. Under this procedure all of UK Co's issued share capital would be cancelled and new shares in UK Co issued to Offshore Co. Offshore Co would then issue its shares to UK Co's shareholders. UK Co would become a wholly-owned subsidiary of Offshore Co.
This procedure requires the consent of the court and of members (and each class of members where applicable). Such a restructuring may lead to share options under existing share schemes vesting. The ability to roll over share options and the terms on which they could be rolled over may depend on the jurisdiction of relocation. There may be change of control provisions in material banking facilities and contracts, or in licences, permits or consents required for the business, which would need to be reviewed or negotiated or consents obtained as appropriate.
(b) Offshore Co could make a recommended takeover offer subject to the City Code on Takeovers and Mergers (City Code) for all of the issued capital of UK Co. Many of the issues set out above will also be relevant under a takeover offer.
(c) UK Co could be wound up voluntarily under section 110 of the Insolvency Act 1986. It would then transfer all its assets to Offshore Co in exchange for shares and securities in Offshore Co which would be distributed to the shareholders of UK Co. Again, many of the issues raised above will also be relevant to implementing this alternative.
Consequences of a change of domicile
These are some of the more important implications of a change of corporate registration and domicile:
Disclosure requirements in relation to both general corporate matters and accounts could be more far reaching and onerous for Offshore Co than companies in the UK. Accounts would have to be produced in line with local reporting requirements although it may be possible for both UK and local reporting to be carried out in tandem. Provisions of UK Co's constitutional documents (its memorandum and articles of association) may not be able to be directly mirrored in Offshore Co's constitutional documents. This could have an impact on the conduct of board and shareholder meetings and shareholders' rights. Local legislation could also affect corporate procedures such as registration of charges and winding up.
It would not be possible to retain an existing listing of UK Co with the UK Listing Authority (UKLA) if it were a wholly-owned subsidiary of Offshore Co (although Offshore Co should be able to list its shares with the UKLA).
Offshore Co would be subject to rules applicable in its jurisdiction of incorporation and no longer to the City Code; these may offer more or less protection from hostile takeovers.
Change in domicile out of the UK may lead to a flow of investors from Offshore Co (although clearly this will depend on the jurisdiction selected).
Richard Edmundson and Mark Poczman
Tel: +44 20 7212 1616
Fax: +44 20 7212 1570