Manufacturing is one of the most asset-heavy and risk-exposed sectors in the UK.
When something goes wrong for the business, the financial consequences can be significant.
Despite the risks associated with a manufacturing business, many still operate through a single limited company that owns everything, from the trading operation to properties, machinery, and intellectual property.
From a legal perspective, this means that all those assets are subject to the same set of risks.
To combat these risks, it could be worth considering whether a holding company structure and “ring-fencing” valuable assets is a sensible strategy for your manufacturing business.
Our Manufacturing Lawyers explore this possibility and highlight key considerations and formalities.
Risks for manufacturing businesses
All businesses face commercial risks, but manufacturing adds layers of exposure that other businesses don’t typically have, creating unique and complex risks.
Common areas of risk include:
Property and asset concentration
Manufacturers often own valuable real estate, plant, and machinery. If these assets sit inside the same company that trades and takes risks, they may be exposed to creditors.
Operational and environmental risks
Factories carry risks linked to machinery, employees, hazardous materials, and environmental regulations. Investigations by the Health and Safety Executive (HSE) or the Environment Agency can lead to fines or prosecutions.
Supply chain and contractual risks
Manufacturers often operate on thin margins with complex supplier and customer contracts. A breach or disruption can have knock-on financial effects.
Product liability
If a manufactured product causes injury or damage, claims can arise under contract, negligence, or statutory regimes. Large claims can be catastrophic for the company.
Ultimately, if everything sits in one company, all assets of that company are available to its creditors.
What is meant by the term “ring-fencing”?
“Ring-fencing” is a corporate restructuring technique which separates a company’s operations from valuable assets by placing them in different legal entities within a group structure.
This would look like:
- Risky trading activities sitting in one company
- Valuable assets sitting in another company (or the holding company)
- Ownership sitting above them (or the trading company) in a holding company
For example, a group structure might involve one company holding the real estate, a second company owning the intellectual property, and a third company (the trading company) carrying out all manufacturing operations, with a holding company sitting above them and owning the shares in each entity.
Alternatively, the holding company could own the real estate and the intellectual property.
When should you ring-fence?
There is no specific time that you should ring-fence, and it may not be the best course of action for your company, but most manufacturing businesses often decide to go down this route due to any of the following factors:
- The business has grown significantly in value
- You have purchased or are about to purchase property
- You are developing valuable IP
- You are bringing in investors
- You are considering succession planning
- You are worried about sector-specific risk (such as product recall exposure)
Where you have a small manufacturing business with fewer assets, it may not be worth the burden of increased administration, multiple companies, increased Companies House filings, and the accompanying accounting and legal fees.
Why asset protection matters
Factories and warehouses are often among the most valuable assets in a manufacturing business.
If the trading company owns the premises and becomes insolvent:
- The property may have to be sold by an administrator or liquidator
- Secured lenders may enforce against it
- Value can be lost in a distressed sale
By placing property in a separate company and leasing it to the trading company:
- The property is generally insulated from operational liabilities of the trading company, provided no cross-guarantees or security arrangements are in place
- Rental income can flow up to the holding company
- The property remains available for future ventures if the trading company fails
Manufacturing businesses often develop trademarks, designs, patents and more.
If those rights are owned by the trading company and it fails, the IP may be sold off to creditors.
By placing IP into an IP holding company and licensing it to the trading entity:
- Core value is protected
- The IP can be licensed to a new trading company if needed
- Group value is preserved for shareholders
This is particularly important where the brand is the real long-term asset.
Restructuring: how to create a holding company
If you already operate through a single company, restructuring is usually possible.
One common method of doing so, is via a ‘share for share exchange’.
The steps are as follows:
- You incorporate a new company (HoldCo);
- The shareholders of the existing company transfer their shares to HoldCo;
- In exchange, HoldCo issues new shares to those shareholders; and
- The original trading company becomes a subsidiary of HoldCo.
Following these steps, no cash changes hands, and you are left with a group structure with a holding company at the top. However, tax advice should always be taken as clearance from HMRC may be required and stamp duty relief will only be available if relevant conditions are satisfied.
Hive-up
Once the HoldCo has been incorporated, the business may choose to transfer (or “hive up”) key assets such as property, machinery or intellectual property out of the trading company into the Holdco or a newly incorporated sister company.
This forms part of the ring‑fencing strategy and ensures that the key assets are separated from the trading risk. However, there are important legal and tax considerations in how this is carried out.
A hive-up will usually involve the trading company transferring assets by way of an asset transfer agreement.
Formalities can vary depending on the type of assets that are transferred to the Holdco, for example, a transfer of property will require conveyancing steps and Land Registry filings, and intellectual property transfers may require filings at the UKIPO.
Assets can be transferred to the HoldCo or sister company either at market value, book value, or another agreed value, but care must be taken as the chosen value can have legal and tax consequences.
Often, intra-group transfers are tax-efficient, but you must always obtain early tax advice to ensure no unintended charges or consequences arise and that any available reliefs can be used.
Ring-fencing considerations
It is important to be aware that, whilst powerful, ring-fencing can still be undermined by:
- Personal guarantees given by directors
- Cross-company guarantees
- Poor documentation
- The Insolvency Act 1986, including undervalued transactions and wrongful trading
Courts may also pierce the corporate veil and disregard corporate structures where they view this structure as a façade.
This is rare but emphasises how it is crucial that the structure is properly implemented and maintained, such as by ensuring there are separate bank accounts and clear, documented board decisions.
Manufacturing is inherently higher risk than many other sectors. If all value sits in one trading company, a single major claim could jeopardise everything you have built.
A properly structured holding company arrangement using lawful corporate separation under the Companies Act 2006 can provide a sensible and legitimate way to ring-fence assets, protect intellectual property, and future-proof your business.
If you are considering whether a holding company structure could help protect your assets and future-proof your manufacturing business, our Corporate solicitors can help.
Contact our team today to discuss your options.
0161 941 4000
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Katie Bartley
Trainee Solicitor
Katie joined Myerson as a Trainee Solicitor in 2024 and is currently in her third seat with the Corporate department.
Prior to this, Katie graduated from the University of Liverpool in 2022 with a 2:1 in BA Politics, before studying MA Law at the University of Law in 2023 and achieving a Commendation.
Katie completed SQE1 before starting with the firm and will complete the remainder of the SQE qualification with BPP University.
About Katie Bartley