Is Corporate Structure Simplification (CSS) essential for UK businesses?

Duff & Phelps has recently argued that a Corporate Structure Simplification (CSS) is necessary in some businesses in order to eliminate the unnecessary entities, manage the risks, and to create a generally leaner enterprise.

If there is one thing that is valued across a business – by the likes of investors, finance providers, employees, and stakeholders, it is transparency.

The “industry independent” firm has explained that businesses can only benefit from “a corporate structure that is streamlined and easily explained.”

“It’s not uncommon for an organisation to have hundreds of companies in its structure,” Eddie Bines, director at Duff & Phelps, added.

“Even when these companies no longer serve an obvious purpose, groups often retain them, leaving them ‘as-is’, rather than toying with the status quo.

“Keeping such entities can be costly, risky (for the corporate itself and directors personally) and can hamper the implementation of other strategic initiatives. Consequently, streamlining the corporate structure is not something to continually postpone, but to tackle head-on in the near term, either on its own, or as a component of wider strategic transformation/reorganisation initiatives.”

According to the firm, recent scandals – such as those in the auditing sector (covered by the CMA’s recent report) – have encouraged corporates to more actively pursue avenues that will enable them “complete independence from their service providers.”

CSS can help to “promote good corporate governance, as well as release capital, increase corporate efficiency, and reduce the financial and administrative burden faced by many businesses.”

“We estimate that the average dormant entity costs approximately £10,000 per annum in direct and indirect costs to maintain,” Bines continued. “An active one can cost upward of £100,000, as a result of the costs associated with the tax compliance, audit, and company secretarial burden, as well as other time-consuming administrative tasks associated with accounting, compliance, and regulatory reporting.

“But it is not just about cost. Our rationalisation process is designed to streamline a business, reduce inherent risk in maintaining the current entity structure, and improve its attractiveness to potential buyers and investment groups.”

He concluded: “Duff & Phelps has worked alongside numerous clients on CSS initiatives, from mid-market to large corporates. A properly planned, resourced, and independent CSS initiative can deliver a wide-range of sometimes unexpected benefits for your organisation. The trick is then to ensure that those benefits are sustained through making CSS business as usual, thereby facilitating long-term entity management.”

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