How much are your subsidiaries costing you?
August 11, 2015
The recent changes to the Companies Act are a real incentive for Finance Directors to consider reducing the number of corporate entities they have in their group to simplify their corporate structure and save their group money.
This is because from 1 July 2015 all companies have to disclose a full list of subsidiaries (both directly and indirectly held), regardless of their size.
This change in UK company law could have far reaching consequences. Apart from the obvious extra paper required to list the 100s, if not 1,000s of subsidiaries, the visibility of all entities in a group might encourage external stakeholders to ask more questions, and could prove costly in extra compliance, controls and auditing.
The changes to the Companies Act will affect both UK and International groups and all accounts approved after 1 July 2015. The requirements apply to accounts prepared under both IFRS and UK GAAP (old and new).
What can be done to reduce the burden?
With a well-planned and implemented simplification exercise, surplus entities can be wound up and dissolved from the register within 6 months in the UK and even faster in other jurisdictions. Whilst companies which are in liquidation at the filing date are still required to be identified; companies which have been dissolved before the accounts are approved fall away completely.
But what about the cost?
Companies I’ve spoken to tell me that taking into account the annual compliance cost savings alone, the payback period for a corporate simplification exercise can be as little as 12 months. The benefits of simplifying the group can be significantly higher if you include the intangible benefits such as simplifying inter-group transactions and the burden of the additional data gathering required to account for all subsidiaries.
So are you in a position where you can count the number of your subsidiaries (UK and Overseas) on two hands? If not, it is definitely worth an informal chat to discuss your potential options. You can contact me using any of the details below and we can either chat over the phone or set up some time to meet face to face.
You can also read a bit more on how best to go about corporate simplification in this blog on the 10 keys to a successful corporate simplification project.