How external reporting becomes a driver for Legal Entity Rationalisation

Beneficial Ownership Information (BOI), Anti-Money Laundering (AML) reporting requirements, multi-level registrations of even the smallest update to a subsidiary’s corporate status and, more recently, the newly introduced US Corporate Transparency Act (CTA) with its reporting obligations… these are just a few examples of the external scrutiny that businesses face when managing their corporate structures.

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Insight: We were once engaged by a client to eliminate several legal entities registered in the Cayman Islands. They had been set up to serve specific project and contractual needs, but turned out to be a showcase of the risks associated with failure to monitor surplus legal entities and the implications of overlooking local reporting requirements. Despite the Cayman project not materialising, the client did not eliminate or repurpose the entities and instead left them idly positioned in the Group with no purpose. From there, the entities were left to fall out of good standing without review from anyone in the organisation for several years! As part of a much larger legal entity rationalisation program some years later, we soon identified that not only were the Cayman entities facing an ‘ex-officio’ dissolution by the local authorities, but they had all been repeatedly fined for non-compliance, with the sanction increasing every year. This ultimately created a completely avoidable liability, as well as a reputational risk for the wider Group. $57,000 later, having settled the fines, JC coordinated dissolution of the entities within 6 months – a simple and expeditious solution to an avoidable situation.

When operating a multi-jurisdictional corporation, no matter how diligent in-house corporate secretarial functions are in trying to keep up to speed with the ever-changing business and regulatory environment, some level of risk inevitably remains. Whilst monitoring compliance obligations in the countries where there is material activity makes sense, it simply is not sensible to spend repeated and unnecessary resources on maintaining entities that are duplicative, surplus to requirement or do not add value.

This is where Legal Entity Rationalisation comes into play and where we at JC hand hold our clients through the process of streamlining their corporate structures whilst delivering cost savings, improving operational efficiency and reducing risk.

In delivering LER projects, we support our clients in understanding and controlling key data points that are required for external reporting purposes. This is part of our Legal Entity Data Management service offering. If legal entity data is not properly maintained, corporate knowledge inevitably deteriorates over time and meeting recurring reporting requirements soon becomes challenging.

At JC we bring vast experience in legal entity data, systems and reporting to help our clients review their existing legal entity data, processes and systems and assess the strength of their controls. By working with our clients to understand their legal entity data requirements, we design and embed fit for purpose processes that meet the growing demands of reporting to global regulatory authorities.

Cost reduction, data accuracy, operational effectiveness and removing inefficiencies (not necessarily listed in their order of importance) prove to be major drivers for modern business, but more importantly they all are a major outcome of Legal Entity Rationalisation (or Corporate simplification, Legal Entity Reduction, Group Rationalisation and Legal Entity Data Management, as it is also known).

JC Consulting provides restructuring advisory and project delivery services. Our restructuring advisory expertise is combined with core principles of project management to drive projects forward in a controlled environment – it is what sets us apart from other advisors.

We often embed ourselves in our clients’ teams in order to become familiar with their business, practices and people to help drive the results required.

Based in the UK, we also have a presence in Europe and Australia, enabling us to meet the needs of our global clients.