Practical problems with hive downs

Question 

My client company began trading in 2003 and is now considering a sale of its business by way of a hive down and subsequent share sale. A significant amount of value in the business is attributable to goodwill and although my client hopes that the hive down will be tax neutral he is concerned about any degrouping charges that might occur on the subsequent share sale. Is my client right to be concerned? 

Answer

The hive down is an increasingly common way of structuring business sales. The seller carries out a pre-sale reorganisation whereby it transfers the company’s business to a new subsidiary (NewCo) and then sells the shares in NewCo to the buyer. The effect of the hive down is generally considered to be tax neutral...