Does your demerger need the tribunal, or just the board?

Promoters often arrive with the outcome already decided — "separate the two businesses" — and ask which form to use. The answer decides whether the exercise takes eight weeks or eight months, so it is worth settling before anything is drafted.

Three routes to a similar outcome

Business transfer or slump sale. One company sells an undertaking to another as a going concern for a lump-sum consideration. It is a contract, executed by the boards, with shareholder approval where the disposal is substantial. No tribunal involvement.

Asset-by-asset sale. Individual assets and liabilities are transferred under separate instruments. Simple to document, but it loses the going-concern treatment and usually attracts a worse tax and stamp-duty outcome.

Scheme of arrangement. A court-sanctioned demerger under the Companies Act. The undertaking vests in the resulting company by operation of law, on the appointed date, with the tribunal's order as the instrument of transfer. This is the route that needs National Company Law Tribunal sanction.

What the scheme route buys you

It is slower and more expensive, so it has to earn its place. It usually does when any of the following is true.

• Contracts, licences or approvals need to move without counterparty consent — vesting by order achieves what an assignment clause may block
• Employees must transfer on continuity of service without individual consent
• There are many assets and liabilities, and executing separate instruments for each is impractical
• The shareholding of the resulting entity is to mirror the transferor's, so a share-swap is needed rather than cash consideration
• Accumulated losses or reserves need to be dealt with in a specified way

What the scheme route costs you

• Tribunal timelines, which are outside your control
• Notice to and objections from the Regional Director, the Registrar of Companies, the income tax authorities and sectoral regulators
• Meetings of shareholders and creditors, unless dispensed with
• Valuation and fairness opinions
• A public process — the scheme and its rationale become visible to counterparties and competitors

The question to answer first

Before choosing, list what actually has to move: which contracts, which licences, which employees, which liabilities. Then ask, for each, whether it can move by consent. If the answer is yes for substantially all of them, a business transfer is almost always the better route. If a handful of critical licences or contracts cannot move by consent, the scheme route stops being expensive and starts being the only option.

The mistake is choosing the form first and discovering the blocked consent later, after the documents are drafted and the appointed date has been announced internally.

Sequencing that holds up

• Map the undertaking: assets, liabilities, contracts, licences, employees, litigation
• Test each item for transferability by consent
• Decide the route, then fix the appointed date around the tribunal calendar rather than the board calendar
• Run the tax and stamp-duty analysis before the structure is fixed, not after
• Keep the accounting treatment and the scheme's clauses consistent — inconsistency here is a common ground of objection

This note is general information, not legal advice on any specific matter, and does not create a lawyer–client relationship. Seek independent advice on your own facts.