Note: Shareholder information, on individual demerger class rulings, is hosted on our Legal Database. To search for a specific class ruling, use our website's advanced search function, making sure you tick the 'Legal database' check box under 'Search in these areas of the site'.
A demerger is a form of restructure in which owners of interests in the head entity (for example, shareholders or unit-holders) gain direct ownership in an entity that they formerly owned indirectly (the 'demerged entity'). Underlying ownership of the companies and/or trusts that formed part of the group does not change. The company or trust that ceases to own the entity is known as the 'demerging entity'.
Figure 1a: before demerger
Figure 1b: after demerger
In the example above, 'Head Company' demerges 100% of its 'Company A' shares to shareholders. Immediately after the demerger, shareholders have a direct 100% interest in each of Head Company and Company A.
There are three ways to demerge that can be used alone or in combination:
- Ownership interests (for example, shares or units) in the demerged entity are disposed of to owners of the head entity.
- Ownership interests in the demerged entity are cancelled and new interests in that entity are issued to owners of the head entity.
- The demerged entity issues enough new interests in itself to owners of the head entity to bring about an effective transfer (often referred to as swamping).