Corporate reorganizations: international experience

Постановка проблеми. В сучасній економіці реорганізація корпорацій, незалежно від їх масштабу та виду діяльності, представляється постійною проблемою при досягненні різноспрямованих цілей: починаючи з періоду, коли компанія починає свій розвиток або знаходиться у кризовій ситуації, або реорганізує управлінську систему, або ж навпаки, є процвітаючою і прагне завойовувати нові ринки. У зв 'язку з цим компанії вкладають гроші у планування та зміну корпоративних стратегій, таких як злиття, приєднання, виділення, поділ та інші види реструктуризації. Структуруючи купівлю та продаж корпоративного бізнесу в США або в ЄС, необхідно прийняти важливе рішення щодо того, чи здійснювати трансакцію у вигляді оподатковуваної купівлі (акцій чи активів) або реорганізації без оподаткування.

Аналіз останніх досліджень і публікацій. Дослідження проблем корпоративних реорганізацій були розглянуті в працях Є. М. Палиги, В. У. Павлова, Г. Т. П'ятницької, В. М. Гриньової, В. А. Євтушевського, Д. В. Задихайла, І. А. Ігнатьєвої, Ю. М. Уманціва. Питання реорганізації - предмет обговорення в огляді американських університетів і об'єкт застосування у великих корпораціях у всьому світі.

Мета статті - описати та порівняти деякі основні проблеми корпоративної реорганізації, пояснити різницю між термінами «реструктуризація» та «реорганізація», вивчити переваги та недоліки кожного типу реорганізації відповідно до законодавства різних країни та окреслити найважливіші угоди M&A в Україні протягом останніх років.

Матеріали та методи. У статті автор розглядає найважливіші етапи реорганізації компанії, її напрями та типи для того, щоб, використовуючи порівняльний метод дослідження, проаналізувати основні принципи реорганізації компаній у різних країнах та, використовуючи міждисциплінарний метод дослідження, зрозуміти вплив правових принципів і правил на процес реорганізації в економіці.

Результати дослідження. Корпорації реорганізууються з різних причин і численними способами. Причиною, як правило, є збільшення прибутку та підвищення ефективності. З організаційно-економічної точки зору реорганізація можлива лише тоді, коли акціонери придбаної або реорганізованої компанії готові продовжувати володіти часткою власного капіталу на об'єднаному або знову створеному підприємстві. Від цього також залежить тип реорганізації, який обирається. У цій статті розглядаються типи реорганізацій, які стосуються цілей оподаткування та підтримуються законодавством США, країн ЄС та України.

Висновки. У теорії корпоративних фінансів максимізація акціонерної вартості вважається основним прагненням будь-яких організаційно-фінансових перетворень, які компанія переживає, тому важливо, щоб будь-який із обраних типів реорганізації відповідав вимогам компанії. Різні альтернативні варіанти корпоративної реорганізації, запропоновані іноземними законодавчими системами, які були розглянуті в цій статті, широко використовуються в корпоративному управлінні на різних іноземних підприємствах. Розширення національного законодавства у цьому аспекті також дозволило б застосувати корпоративні реорганізації в нашій країні у більш широкому масштабі. Тому ми вважаємо важливим описати та порівняти основні питання корпоративної реорганізації, вивчаючи переваги та недоліки кожного типу реорганізації відповідно до законодавства різних країн.

Коли головним пріоритетом є життєздатність існуючого бізнесу, яка досягається шляхом реорганізації, злиття або поділу, необхідно подумати про українські норми в цивільному та господарському праві, які зроблять злиття, придбання чи поділ більш транспарентними і забезпечать відповідні податкові умови таких перетворень.

Ключові слова: реорганізація підприємств, злиття, поділ, оподаткування, типи реорганізацій.

Background

In the modern economy, reorganization of corporations, irrespective of their scope and kind of activity, appears to be a perennial problem while achieving multidirectional goals: starting from the period when a company gets from the ground, is on the rocks, gets rid of the dead wood in managerial system or, on the contrary, wants to bear fruits or branch out into new markets. In connection with this, companies plough money into planning such cooperative strategies as mergers, amalgamations, divestitures and restructuring. In the media we often hear or read about acquisitions and mergers among large companies in Ukraine and abroad, some of them are really much spoken of.

While structuring the purchase and sale of a corporate business in the USA or in the EU, an important decision must be made, namely whether to cast the transaction in the form of taxable purchase (stock or assets) or tax-free reorganization.

Analysis of the recent researches and publications

The questions concerning the research of the problems of corporate reorganizations were considered in the works of Y. M. Palyga, V. J. Pavlov, G. T. Pyatnytska, V. M. Grynyova, V. A. Yevtushevskiy, D. V. Zadukhaylo, I. A. Ignatyeva, J. M. Umantsiv [1-8]. Reorganization issues are the object of discussion in American university reviews and are the object of application in big corporations all over the world.

The aim of the article is to describe and compare at least some basic corporate reorganization issues, explaining the difference between the terms «restructuring» and «reorganization», studying advantages and disadvantages of each type of reorganization according to legislation of different countries and listing the most significant M&A deals in Ukraine recently.

Material and methods

In the article, the author reviews milestone points of a company reorganization, its directions and types in order to, using a comparative method of a research, analyze main principles of reorganizing companies in different countries and, using interdisciplinary method of research, understand the influence of law principles and rules on the process of reorganization in economics. In the article, there were collected, classified and analyzed information and data of the US Revenue Code, the EU Council Directive, Ukrainian Civil Code, M&A Ukraine Database.

Results

Corporations reorganize and restructure themselves for various reasons and in numerous ways. Companies reorganize themselves to increase profits and improve efficiency. The reorganization of a company typically addresses the efficiency component in an attempt to increase profits. Corporate reorganization normally occurs following new acquisitions, buyouts, takeovers, other forms of new ownership, or even the threat of filing for bankruptcy [9]. A reorganization is only feasible where, as an economic matter, the shareholders of the acquired company are willing to continue to own an equity interest in the combined entity.

Further in this article, we will consider the types of reorganizations which deal with the purposes of taxation and are supported by legislation of the USA [10] and the EU-countries [11]. In tax-free reorganization, the tax attributes of the acquired company will be inherited by the buyer, either directly (in the case of an asset reorganization) or because they are retained by the acquired company itself (where that company remains in existence and its stock is acquired). Similar treatment is available in the case of a taxable stock purchase, but not a taxable asset purchase. In any event, substantial limitations may affect the ability of the buyer to take advantage of loss carryovers and other favorable tax attributes.

Countries typically have specific rules for tax-free reorganization in their tax laws. In the USA, the objective of these rules is not to grant a tax exemption to the companies or shareholders involved, but to «neutralize» the tax consequences of business reorganization, so that the reorganization involves neither a tax advantage nor a tax disadvantage. The term «tax-free» is a misnomer because the tax is not eliminated, but will be realized when a later taxable transaction occurs [9]. In other words, reorganization refers to the sale or merger of a company that involves a change in ownership, legal and management level changes, as well as a change in stocks. It is a court-supervised formal process that restructures a company's finances after it faces bankruptcy. Though one of the aims of reorganization is to restructure company's operations, finances or management, there is a slight difference between the terms «restructuring» and «reorganization». In common words, restructuring tends to be used in the context of a troubled company or turnaround situation, while reorganization, though it might very well be a part of that, but more generally it refers to a more «elective decision» by management to change structure in order to improve efficiency, to achieve a desired strategic objective, etc. The above cases are not universal, but are widespread indeed.

In addition to meeting the continuity of interest requirement, reorganization must meet various technical requirements under the U.S. Revenue Code, Part III, Paragraph 368 [10]. The precise requirements vary with the particular form of reorganization used. The Code presupposes seven types of reorganizations which are legislatively declared and collated in four categories.

In a typical A reorganization, the target corporation's assets and liabilities become assets and liabilities of the acquiring corporation and the target corporation ceases to exist. Type B reorganization is an acquisition of stock of the target corporation in exchange solely for voting stock of the acquiring corporation, provided that the acquiring corporation has «control» (generally 80 % ownership) of the target corporation immediately after the transaction while type C reorganization is an acquisition of «substantially all» the assets of the target corporation in exchange for voting stock of the acquiring corporation followed by a liquidation of the target [9]. Some peculiarities of transaction created a close to type C reorganization where there takes place the transfer of «substantially all» of the target corporation's assets to an acquiring corporation, provided that the target corporation or its stockholders (or a combination of the two) has «control» (generally 80 % ownership) of the acquiring corporation immediately after the transfer. In this case, we are talking about acquisitive D reorganization. A recapitalization (type E reorganization) is a reshuffling of an existing corporation's capital structure. A recapitalization transaction involves the exchange of stocks and securities for new stocks, securities or both by a corporation's shareholders. The move concerns just one company and the reconfiguration of the company's capital structure. Possible scenarios include a stock-for-stock recapitalization plan, a bonds-for-bonds move and a stocks-for-bonds transaction. Type F reorganization rules generally apply to a corporation that changes its name, the state where it does business or when it makes changes in the company's corporate charter, in which case a transfer is deemed to occur from the prior corporation to the new company. Type G reorganization involves bankruptcy by permitting the transfer of all or some of a failing company's assets to a new corporation. One caveat is that the stock and securities of the controlled corporation are distributed to the previous company's shareholders under Type D (transfer reorganization) rules for distribution [12].

Before making decision which type of reorganization to choose, a company should understand the goals of reorganization, decide whether to reorganize in the form of taxable purchase (stock or assets) or a tax-free reorganization, assess the legal consequences of the decision made and estimate the resources which the company possesses, as well as it should talk to counteragents and potential partners of reorganization. All these factors determine the advantages and disadvantages of different types of reorganization for each company individually. They are presented in table 1.

Business restructurings and reorganizations have become common for multinational corporations, being a normal reaction of the market needs and forming adequate competitive edges. The impact of the EU law on aspects of corporate reorganizations is resulted in the so-called Merger Directive [11]. The term «corporate reorganization» is used in a generic way, encompassing the types of transactions covered under the Merger Directive, transfers of seat and internal transfers of assets. The Merger Directive introduces tax rules aimed at ensuring that cross-border restructuring operations would not be at a disadvantage compared to similar domestic operations. Such operations may be necessary in order to create in the Union conditions analogous to those of an internal market and to ensure the effective functioning of such an internal market. Therefore, corporate reorganizations ought not to be hampered by restrictions, disadvantages or distortions arising in particular from member state tax provisions. The Directive contains specific rules on how to attain this objective [13].

Only certain types of transactions are protected by Merger Directive.

As to Ukrainian legislation, the term «reorganization» has several interpretations in law depending on the purposes of legal regulation of certain confidential relations.

The Civil Code of Ukraine [14] practically does not regulate relations of reorganization (this term is mentioned in the Code only once), addressing them as the issues of termination of activity of one legal entity and creation or transformation of another one. According to the Article 104 of the Civil Code of Ukraine, termination of a legal entity occurs as a result of transfer of its property, responsibilities and rights to another legal entity or several succession-seekers in one of the following ways: division, split, transformation, merger, takeover. These are types of reorganization.

The Article 109 describes split-off as along-standing type. Moreover, in Ukraine there are no legislatively secured provisions concerning reorganizations. In some countries, the absence of provisions relating to reorganization can be explained by the fact that capital gains are not subject to tax.

However, not every reorganization of an enterprise can be connected with termination of activity because a reorganized enterprise often continues to exist after a new company has split off from it. Such an enterprise needs to make appropriate changes to the statutory documents or to re-register.

Reorganization of an enterprise which misuse its monopoly position at the market may also be carried out through its compulsory division in the manner prescribed by law.

In a broader sense, reorganization is a complete or partial replacement of the owners of corporate rights of an enterprise, is a change in the organizational and legal form of business organization, is elimination of certain structural units or creation of some new ones on the basis an old enterprise, the consequence of which would be a transfer or taking possession of its property, funds, rights and responsibilities by a successor.

The form of the future reorganization of an enterprise is determined, first of all, by the reasons and motives which encourage the owners and management of an enterprise to make reorganization. There are the following directions of reorganization in Ukrainian legislation:

> integration of a going-concern enterprise. Is carried out by way of merger, consolidation, takeover;

> division of a going-concern enterprise. Is carried out by dividing or splitting of an enterprise;

> transformation of an enterprise. In this case, changes in size of an enterprise are not stipulated.

In spite of the variety of possibilities to reorganize a company, in Ukraine and abroad the first place is taken by the agreements concerning the market of mergers and acquisitions. According to the statistics that is shown in the AEQUO merger market report [20], the number of M&A deals in Ukraine in 2015 amounted 140, the most significant among them were those which will be presented further in the table.

One can state about flurry of activity on the M&A market in Ukraine which could be observed in 2016 as well. The number of deals 2,5 times increased compared with 2015. According to the M&A Ukraine Database [21], the highest number of such transactions is in banking (25 deals), in construction (9 deals) and in agricultural sector (8 deals).

Table represents the most significant M&A deals in Ukraine during the last two years indicating the Target firms, the Buyers, as well as the total amount of transactions.

Table

Eleven most significant M&A deals in Ukraine in 2015-2016*