Case Study: Using an Employee Ownership Trust to facilitate an exit strategy

Company Background

Quadriga Limited, a building restoration and structural repair company based in Cheshire, has been established for over 33 years. The company, led by Managing Director Mark Pearson, employs around 60 staff along with various subcontractors and works primarily in the public sector.

Challenge

Mark Pearson, previously the sole director and shareholder of Quadriga Limited, had been searching for a viable exit strategy for the past five years. As he approaches retirement, he wants to release some capital and relinquish equity in the business, ensuring its smooth operation and continuity. However, traditional buyout options seemed unfeasible due to the lack of available funds from his management team.

Solution

Seeking a solution that aligned with his financial goals and safeguarded the company’s future, Mark turned to his long-time accountants, who recommended exploring a corporate reorganisation which would reward the existing management team and create a discretionary trust for the benefit of qualifying employees of the Company.

How Butcher & Barlow Assisted

Upon his accountants’ recommendation, Mark approached Butcher & Barlow for legal assistance. The Firm played a crucial role in structuring and implementing the transfer of shares and reorganisation. An Employee Ownership Trust would be set up to facilitate the tax-efficient transfer of shares and meet HMRC requirements. This trust would hold 26% of the company’s shares, and the management team held 25%, ensuring Mark no longer held a controlling interest.

The management team received 25% of the shares, divided among three directors, with each receiving 10%, 10%, and 5%, respectively. This distribution enabled Mark to benefit from Entrepreneur’s Relief and secure favourable tax treatment. The trust holds the remaining 26% of shares, which can be allocated to current or future directors based on the company’s needs and performance.

Butcher & Barlow handled the legal intricacies and paperwork, ensuring a smooth and compliant transition. Jonathan Aldersley, on behalf of Butcher & Barlow, meticulously organised the documentation and facilitated the signing process, providing clarity and assurance to all parties involved. The reorganisation allowed Mark to step back while ensuring the business’s stability and continuity. He received the financial benefits from the share transfer without jeopardising the company’s cash flow, and the members of the management team, now shareholders in the company, were motivated to drive further success.

Reflecting on the experience, Mark Pearson said: “Working with Butcher & Barlow was a fantastic experience. Jonathan simplified the complex process, spoke in plain English, and ensured everything was legally sound. The transition was smooth, and I was impressed with the thoroughness and efficiency of their service. I would highly recommend Butcher & Barlow to any business looking for a comprehensive legal solution.”

Conclusion

Mark Pearson’s experience with Butcher & Barlow highlights the Firm’s expertise in facilitating complex business transitions. By implementing such a reorganisation and setting up an Employee Ownership Trust, Butcher & Barlow provided a tailored solution that met Mark’s exit strategy needs while ensuring the continued success of Quadriga Contracts Limited.

 

 

If your business is considering a similar transition or requires legal assistance, get in touch with our Corporate and Commercial Team to find out how we can support you.