May 16, 2018
The current business climate in Nigeria requires companies to adopt effective strategies to remain competitive, ensure growth and enhance profitability. One of the strategies to ensure optimal performance is business restructuring. While extraneous factors such as poor infrastructure and adverse government policies can affect businesses significantly, inefficient business structures can also be a significant challenge.
Apart from establishing an efficient structure, business restructuring is sometimes induced by regulatory requirements. For instance, during the banking sector reforms in 2010, the Central Bank of Nigeria mandated Nigerian Banks to dispose their interest in non-bank subsidiaries. Business restructuring may also be necessitated by legislations such as the local content requirements in the Petroleum and Advertising industries.
Business restructuring can range from outright sale of equity interest to Mergers and Acquisitions (M & A). Some of the most common forms in Nigeria include, sale or purchase of crown assets, business combination (in the forms of share purchase/acquisition, mergers and acquisitions, demerger and asset/business spin-off) and capital reorganization (in the forms of debt-to-equity conversion, capital reduction, share buyback, stock split and stock consolidation). Business restructuring may involve the use of contractual agreements, legal structures and statutory provisions.
Regardless of the reason for a business restructuring, there are certain tax considerations to be evaluated for a tax efficient restructuring exercise. We have analyzed below, the key tax considerations for a business restructuring exercise with a focus on M & A, which is the most common form of restructuring in Nigeria.