4.3.2.1 Sections 110-111 of the Insolvency Act 1986

As mentioned above, appraisal rights in the UK are only made available to minority shareholders in the Insolvency Act when they dissent from the scheme of reconstruction in a voluntary winding up. A company cannot by a provision in its constitution disregard the dissenters' rights under s. 111.1 Dissenting shareholders can require the liquidator either to abandon the scheme of reconstruction or to buy out their interests at a price determined by agreement or by arbitration.

Reconstruction in this section means "the transfer of the undertaking and business of a company to a new company specially formed for the purpose."2 The reconstruction form provided in section 110 is, at any rate, not a complicated form: The original company is put into liquidation first, and instead of being paid back their capital by the liquidator in cash and investing it somewhere else, the members agree to receive a distribution of shares or other like interests (usually in proportion to their shareholdings in the old company) in the new company, and become shareholders of this new entity. The net result is "the same members carry on the same, or some part of, the enterprises through the medium of a new company".3

This reconstruction process in a voluntary winding up is used in reorganizing company structures, either to unlock values in the previous entity or to cut down the size and cost in the original company.4 For example, when parts of the business of a profitable company are carrying losses, to promote returns on the overall investment and attract new investors, the company can decide to divide the business into separate parts and then effect a scheme of reconstruction under s. 110, the intended consequence of which is to transfer the assets and promising parts to the new entity specially founded for this purpose and meanwhile dispose of profit-losing parts, whereby the value of the whole organization can be promoted. And this mechanism can also be used to return assets to shareholders when the market slumps and the shareholders believe they have invested more than the business actually needs. Although the terras used in ss. 110-111 is "one" transferor and "one" transferee company, in practice, it is allowed to reconstruct several liquidating companies into one and one liquidating company into several.5 A parent company with too many subsidiaries can use this procedure to get rid of some redundant subsidiaries in order to achieve better efficiency and cost savings.6 And when several liquidating companies are put into one, the practice has a similar effect as a merger. Section 110 is a very straightforward and simpler procedure to transfer the business or combine several companies together, compared with other schemes of arrangement in CA 2006, such as the merger provisions in Part 26, which will be briefly discussed in the following part.7