Most structures we are asked to look at were sound when they were built. What changed was everything around them — the rules, the business, the owners' circumstances, or the willingness of banks to deal with them. A structure is a solution to the conditions of a particular moment, and the moment moves.
The signs that it has stopped working
- Nobody can explain it in two minutes. If the reason each entity exists cannot be stated plainly, that will be a problem in front of a bank, an auditor or a tax authority — because they will ask exactly that.
- Entities that do nothing. Companies still filing, still costing money, with no current commercial function.
- Banking has become difficult. Slow onboarding, repeated questions at every periodic review, or an exit. Banks are frequently the first to signal that a structure has aged badly.
- The rationale has been superseded. The relief it was built around has been withdrawn, the treaty renegotiated, or the threshold moved.
- Substance no longer matches the profit. An entity reporting materially more than its people and premises could plausibly generate.
- The owners moved. Personal tax residency changes can invalidate the assumptions the whole arrangement rested on, and this is the change people are least likely to connect to the corporate structure.
- It was inherited. Acquired with a business, or set up by an adviser nobody has spoken to in years, and never independently reviewed.
Diagnose before you prescribe
The temptation is to start dismantling. Resist it until you can describe the current position accurately, which is harder than it sounds for a structure that has drifted.
- Map what actually exists. Every entity, where registered, current status on each register, who the officers are, who owns what, and whether the filings are current. Structures of any age routinely contain entities the owners had forgotten.
- Establish where each is tax resident, in fact rather than in intention.
- Trace the flows. Which entity earns what, what moves between them, and on what contractual basis — if any.
- Identify the original purpose of each entity, and mark honestly whether it still applies.
- Find the exposures. Unfiled returns, undocumented intercompany positions, permanent establishments nobody registered, beneficial ownership filings out of date.
- State the objective now. Not the objective from when it was built. What is this business trying to do over the next five years?
It is common for the diagnosis to produce a different conclusion from the one expected — most often that the structure is broadly sound but under-documented, and the answer is remediation rather than reconstruction.
Why unwinding costs more than building
Formation is a series of independent steps. Restructuring is a chain in which each move has consequences in more than one country, and some of them are irreversible.
- Moving assets between entities is usually a disposal, capable of crystallising a gain even where no cash changes hands and no third party is involved.
- Extracting accumulated profits triggers whatever charge applies to distributions — a charge that was deferred, not avoided, and now falls due.
- Reliefs can be lost by disturbance, including holding-period conditions and participation exemptions that reset.
- Anti-avoidance provisions look at purpose. A reorganisation carried out mainly for a tax outcome can be recharacterised.
- Historic exposures surface. Bringing filings up to date reveals what was not filed. That is the right thing to do and it is not free.
- Banking has to be rebuilt. New entities need new accounts, and the current environment is harder than when the original accounts were opened.
- Contracts have to be assigned — customers, suppliers, employees, licences — and counterparty consent is often required and occasionally withheld.
Sequence matters more than design
A sound target structure reached in the wrong order can cost more than the arrangement it replaced. Some general principles hold.
Fix compliance first. Bring filings up to date before moving anything. Clearances, certificates of good standing and tax clearances are prerequisites for most of what follows, and they cannot be obtained by an entity in arrears.
Document the present before changing it. Put written agreements behind existing intercompany arrangements. It is far easier to regularise a position while it continues than to explain it retrospectively after it has been dismantled.
Establish the new before dissolving the old. New entities registered, new accounts open and tested, new contracts in place. Closing first creates a gap in which the business cannot operate, and banking timelines are the constraint that most often makes that gap longer than planned.
Migrate deliberately, with effective dates that are documented and consistent across every affected jurisdiction. Ambiguity about when something moved is precisely what an enquiry examines.
Close properly at the end, not by abandonment — see closing a company properly for what that involves and what happens to assets left behind.
Consider the alternatives to reconstruction
Full restructuring is one option among several, and frequently not the best.
- Remediate in place. Where the shape is right and the documentation is thin, fixing the documentation is cheaper and less disruptive than rebuilding.
- Add substance instead of moving. If the weakness is that an entity does too little, the answer may be to give it real functions rather than to relocate it.
- Simplify partially. Removing two dormant entities from a group of six is often most of the benefit for a fraction of the cost and risk.
- Redomicile rather than reincorporate, where both jurisdictions permit continuation. The company keeps its identity, its history and sometimes its banking, which a newly formed replacement does not.
- Do nothing, deliberately. Where the structure works and the cost of change exceeds the benefit, the correct answer is to leave it and document why. This is a real conclusion, not an absence of one.
Two mistakes worth naming
Acting on a headline. A rule change is announced, and a restructuring begins before the detail, the transitional provisions or the commencement date are known. Transitional relief is frequently more generous than the announcement suggested, and moving early can forfeit it.
Restructuring around a problem that is really about people. If the exposure is created by where the directors sit or where the owners live, no arrangement of companies fixes it. The structure will be rebuilt, the exposure will remain, and the cost will have bought nothing.
Reviewing an inherited or outdated structure is work we do regularly, including saying when the answer is to leave it alone. Describe what you have and we will tell you what we think.