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A capital reduction demerger is a non-statutory method to carry out a demerger.

The stringent conditions for a statutory demerger and the chargeable payments rule can often make that demerger route unfeasible or undesirable. See the Statutory demergers - overview guidance note for details of these.

Common scenarios where the statutory demerger route may not be suitable or indeed available include where:

1. •

   the company does not have sufficient distributable reserves

2. •

   there are plans to sell the demerged business or businesses

3. •

   the business that is being demerged is not a trading business

In such cases, there are two alternative non-statutory procedures for carrying out the demerger. One is through a reduction in the company’s share capital, known as a demerger by way of a Companies Act reconstruction or a ‘capital reduction demerger’. The second is set out in Insolvency Act 1986, s 110, and is often referred