Pictured: Chris Farrington
Analysis of the legal company structures of East Midlands
businesses by Deloitte shows that 5,719 of the 13,222 subsidiary
companies registered in the region - more than 40% - are dormant.
With an estimated cost of up to £10,000 per year in
unnecessary administrative costs and management time, these surplus
entities could be costing businesses in the region of £57
million per year, money which could be put to more profitable use
by the groups concerned.
The number of companies in a group structure can be used by
senior management as a good indicator as to whether there is an
opportunity to improve efficiency, save costs and reduce risk.
Chris Farrington, Partner leading the restructuring team at
Deloitte, Nottingham, explains: "The figures from the analysis
indicate a missed opportunity. Whist there is inevitably some cost
associated with groups eliminating their unwanted subsidiaries
using appropriate procedures; the payback period associated with
this 'one off cost' is very attractive".
Farrington continues: "Most business leaders do not realise how
much it costs to keep an oversized legal structure running, with
only the statutory filing costs often being considered. This is not
surprising, as most accounting systems set up by management do not
provide information on the cost of maintaining a group's legal
structure. However, cost is only one of the issues. The regulatory
burden of having unnecessary companies increases risk and diverts
management time, in addition to which having an operating structure
that is aligned to a legal structure also helps drive business
efficiency".
"Streamlining operations can often be put into the 'not urgent'
or 'too difficult' pile. As a result, many businesses miss
the opportunity to simplify the legal structure of their group. A
way round this can be to go for the low hanging fruits - get rid of
the companies that are not trading but have a clear plan for the
operational companies. The journey towards that plan can then be
completed by a series of easier steps at an appropriate time, often
triggered by something else such as a change in accounting system
or tax legislation."