Public companies and large private companies that have been incorporated a number of years are likely to have accumulated a number of subsidiaries, some of which will be defunct. In other cases, the subsidiaries may not be actively trading but may have historic liabilities, actual or contingent. In both cases, it may make sense to get rid of these unwanted subsidiaries. What are the alternatives?
Defunct companies may have come into being following an acquisition or group reorganisation, or where a proposed transaction, for which new companies have been incorporated, does not complete. Alternatively, a new company may have been incorporated as a vehicle for marketing a new product, which does not then come to fruition.
These defunct companies may persist simply because no one within the group has responsibility for them — the administrative burden is spread across different departments with the consequence that no one person appreciates the overall cost of their maintenance. The costs of maintaining these subsidiaries can be significant — in wasted management and company secretarial time and audit fees. There are other reasons, unrelated to costs savings, why it can be beneficial to rationalise dormant subsidiaries, including…
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