The Herd Group Moves to Employee Ownership

We advised Herd Group on transferring to an Employee Ownership Trust.

The Herd Group is a Surrey-headquartered vehicle rental firm that has seen significant year-on-year growth since the business was founded in 2014. The firm, which now operates throughout the UK through its 30-strong team, has created the Herd Group Employee Ownership Trust (HG-EOT) to ensure continuity across all areas of its business and enable the Herd brand to remain in place “for years to come” in the words of Herd Group CEO Nigel Schroder.

“Within our industry sector we see so many businesses being swallowed up by larger competitors or taken over by outside investors when they reach a certain size, in terms of both their fleet and profit returns,” Schroder said in a statement. “Invariably, the original business and the culture of that business are destroyed, broken up and diluted, in order to be absorbed into the buying business or restructured under an investor. The people that built the original business become a number and the culture that created the success is forgotten.”

We advised the firm on tax and accountancy matters with a team led by partner Kate Naylor.

An interview with Kate Naylor.

Can you tell us more about the tasks you undertook during the move?

The key aspects initially were making sure the stakeholders understood the concept of an EOT, and what it meant for them personally, but also for the employees both now and into the future. There are some great tax benefits both for the selling shareholders and for the employees in being EOT-owned. The selling shareholders do not pay any tax on the disposal of a controlling interest in a trading company to an EOT, and employees can be paid a tax free bonus of up to £3,600 per annum by a business held by a qualifying EOT.

However, setting aside the tax, it is vital that such a big move is done for the right reasons and that it suits the business. Having established this, there are a number of technical considerations to check in terms of the rules relating to EOTs, and seeking HM Revenue and Customs tax clearance is an important part of the project

What key considerations must be taken into account when a firm moves to employee ownership?

It is very important that there are key employees who understand and appreciate the EOT concept and want to get involved as trustees or directors to help lead the business into the future. An invariable part of the move to employee ownership is that employees are stepping up into greater levels of leadership and responsibility and will be fundamental in the future growth and success of the business.

How did these considerations manifest during this operation, and did any complications or obstacles arise during the course of your work?

Nigel and his team at Herd had worked very hard to get to a point where they knew who would be great candidates for the roles, and so this aspect went really well. They had given a lot of thought as to how they would position this with the team, and it was really appreciated as it is a fantastic opportunity for them. We have seen situations where this has not really worked, and this can place a lot of unhelpful strain on the business post-EOT, causing focus to be on making changes to the leadership team rather than growing and developing the business.

We can be on hand as your professional advisors to field any questions from the employees and to ensure they do have a thorough understanding of what EOT ownership really means.

How did your own work and collaboration with other legal counsel see the project to satisfactory completion?

It worked really well – the majority of our work was at the start, preparing the clearance for HMRC, ensuring the concept could work from a tax perspective and protecting the long term health of the business. In the middle, the legal team worked incredibly hard to deliver the transfer into employee ownership before Christmas. Now we are working with the Herd team to sort out all of the compliance aspects of the new structure and offering any guidance as needed.

What does the future hold for the Herd Group and its operations under its new Employee Ownership Trust?

I think that the future looks great for the Herd Group. It is an exciting business with great plans and ideas; a really fun brand. Moving to EOT ownership represents quite a major shift for the management team, with new responsibilities and roles, leading to greater engagement in shaping the future of the business. I cannot wait to see where it goes from here.

In what ways does your work on this move fit the profile of your firm?

We love to advise owner-managed businesses, and in particular (from my perspective) it is fantastic to be advising owners who are buying, selling, merging or reconstructing their businesses. There are so many angles to consider, and we pride ourselves in giving the all-round advice that is needed without lots of jargon. Understandable advice that is effective and delivers the key objectives of the key stakeholders is at the foundation of what we do.

If you have any queries regarding EOT’s, please contact Kate Naylor or your usual AAB Group contact.