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Demerging a company involved in an ongoing legal dispute


A company carries on a consultancy business and has also acquired various investment properties. It is also involved in a legal dispute in relation to a £1m debt owed by a major client of the consultancy business. The two 50% shareholders have fallen out and wish to go their separate ways. Mr X wants to take over ownership of the investment properties; and Mr Y wants full control of the consultancy business. However they each want to share in any upside of the legal claim. Company net assets are £3m (including property of £1m and net current assets of £2m). The accounts value the legal claim at nil and the parties have agreed that goodwill should be valued at nil for the purposes of the deal (and no value is shown in the accounts). How should the deal be structured?

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