COVID-19 #8 Sale of non-core or distressed businesses


Successfully raising cash through the divestment of non-core assets or businesses requires careful consideration, especially in a situation of financial distress. Although from a sell-side perspective a share deal is often preferred (click here), sellers may still be tempted to engage in an asset deal in their quest to realise the best possible outcome. Various matters, such as the degree of integration of the assets in the main business, the time window for completing the transaction, the existence of pre-transaction tax liabilities, social liabilities or pension liabilities, the inclusion of real estate, the qualification as line of business, the tax implications in the hands of the sellers and the buyers, etc. may all have their relevance to determine the most efficient way of transacting.

Item #8: Sale of non-core or distressed business(es) or assets

From a sell-side perspective, the most imminent concern upon a carve-out is that capital gains realised (if any) may lead to immediate taxation – at a rate of 25% – substantially reducing the free cash flow to fuel the remaining business. Although such capital gains may be (partially) offset by any current year and/or prior year tax losses (or other tax attributes), the use of such carried forward tax attributes may be capped at 70% of the taxable basis exceeding €1m, leading to an unsolicited tax cash out. The capital gains taxation may be deferred in time if the seller is willing to reinvest (subject to conditions). When in distress, this will most likely not be possible to achieve.

From a buyers’ perspective, the purchased assets are – for Belgian GAAP and tax purposes – recorded at acquisition value. Compared to a share deal, this step-up in acquisition value results in an increased depreciation basis and a future cash tax saving.

Another consideration is the qualification of the transferred assets as a line of business. Although irrelevant for corporate income tax purposes and registration duties (as an asset deal will anyway be taxable for these purposes), a line of business may still be exempt for VAT and therefore relevant from a cash planning perspective. As the concept of continuity for labour law is even more flexible, an asset deal that qualifies as a line of business may also be classified as a transfer of going concern for the transferred workforce. The latter inter alia entails that the working arrangements as agreed upon in the existing employment contract – incl. yearly remuneration, bonus / pension scheme, vacation policy, seniority, etc. – are rolled over to the acquiring company, and therefore such transfer is to be closely monitored from that angle as well.

Whilst upon an asset deal the buyer does not automatically assume all legal obligations or liabilities of the seller (unless in case of a transfer of a line of business whereby a specific legal procedure is applied), the buyer can nonetheless be held jointly and severally liable for tax and social liabilities. A specific notification procedure exists to make an asset deal opposable to the Belgian tax and social security authorities and to limit any secondary liability for the acquirer (if properly implemented).

The choice for an asset deal or a share deal to structure the sale of non-core assets will have a direct impact on the tax effects and as a result on the net amount of cash raised through the divestment.


While most companies have applied for the COVID-19 measures available by now, we see that quite some groups struggle to monitor closely their short-term (and certainly mid-term) cash position and how to manage and optimise it further to steer their company through this crisis in the best way possible. We meanwhile have created the following email platform: in order to give you a sounding board in these challenging times.