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CS Professional · Corporate Restructuring, Valuation and Insolvency · Planning and Strategy

Orion Retail Ltd transfers its e-commerce division to a newly formed company, Orion Digital Ltd. Orion Digital issues its shares directly to the shareholders of Orion Retail in proportion to their holdings, and Orion Retail continues with its remaining business. What is the correct classification?

This is a demerger. An undertaking moves from Orion Retail to a resulting company, and the resulting company issues its shares directly to Orion Retail's shareholders in proportion to their holdings. In a slump sale the consideration goes to the seller company, which is not the case here.

  1. ADemerger with the resulting company issuing shares to the demerged company's shareholdersCorrect
  2. BSlump sale for cash consideration
  3. CReduction of capital with no transfer of undertaking
  4. DBuy-back through a tender offer

Explanation

A demerger transfers an undertaking from the demerged company to a resulting company, and the resulting company issues shares to the shareholders of the demerged company in proportion. A slump sale gives cash or other consideration to the seller company, so it does not fit. No capital is cancelled and no shares are bought back.

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