• Demergers: Overview

    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'.

    Introduction

    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'.

    Example

    Figure 1a: before demerger

    Figure 1a: before demerger

    Figure 1b: after 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:

    1. Ownership interests (for example, shares or units) in the demerged entity are disposed of to owners of the head entity.
    2. Ownership interests in the demerged entity are cancelled and new interests in that entity are issued to owners of the head entity.
    3. 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).
      Last modified: 03 Feb 2016QC 17023