How can a company protect its assets in the face of trading risk?

Paul Macdonald | 23 Jun 2020

INSIGHTS

Where a company owns significant assets, such as property, cash, etc., these assets could be at risk should the company encounter financial issues. In advance of such issues arising, many companies guard against the risk of losing assets by adopting asset protection strategies.

Holding companies

A commonly used strategy is to move assets out of the company and into a new holding company, with the aim of putting these assets out of reach of claims against the trading company.

This can be achieved by creating a new holding company to hold the shares of the trading company. The existing shareholders transfer their shares in the trading company to the new holding company, in exchange for the allotment and issue of shares in the new holding company.

The trading company will continue to operate, and any valuable assets such as property, equipment, cash, intellectual property, etc can be transferred up to the holding company. The trading business and the assets will then be held in separate companies, with the assets sheltered from trading risk.

Where the trading business comprises multiple different trade operations, trading risk can be further mitigated against by creating a new subsidiary company for each individual trade operation.

The holding company can incorporate a new subsidiary company for each trade operation to sit alongside the existing trading company. Each trade operation can then be transferred into its own limited company. These subsidiary companies will be operated and controlled by the holding company. If one subsidiary should underperform or become insolvent, the overall impact to the group is minimised as each trade operation is isolated and protected from the risks associated with the other trade operations.

Please note that prior to any company implementing an asset protection strategy, it is essential to seek legal and tax advice to ensure the strategy is suitable.