A client came to us whose business value was real, but whose ownership structure was not. Several assets and liabilities were held by different individuals and legal entities with no clear logic, and at the centre sat a distressed asset with debts and encumbrances that dragged everything else down. The task sounded simple: bring it all into a single manageable structure with protection for the parties and a clear accountability perimeter. In practice it was a project of holding design and untangling liabilities. The case is composite, with no names or titles.
The situation: value exists, structure does not
The group of assets had formed over several years in a chaotic way, deal by deal and agreement by agreement. By the time the client reached out, the picture looked like this: three operating lines of business, a real estate property, a pool of intellectual property and equipment - all of it scattered across four legal entities and two individuals. Some assets were registered to one partner, some to the other, some to a company that, on paper, did not really belong to either of them.
At the centre of the construction sat the distressed asset: a legal entity with accumulated debt to a bank, a personal guarantee from one of the partners and an encumbrance on key property. This asset was needed - the licence and part of the revenue depended on it - but it also poisoned the entire group. Every attempt to bring in an investor or a partner ran into one question: "Who here is responsible, and for what?" There was no clear answer.
The key risk of the original scheme. The distressed asset is linked to the clean ones horizontally - through loans, guarantees and shared property. This means enforcement on the debt of one legal entity can reach the others. The clean assets are not isolated from the dirty one - they are infected by the connection to it.
What exactly stood in the way of building the structure
We broke the construction down into nodes and identified four problems that could not be solved separately - they held on to one another.
- No group owner. The assets belonged to different people directly. There was no legal entity that owned everything and through which an investor could enter or a stake could be transferred.
- Cross liabilities. The legal entities issued loans and guarantees to each other, and the partners' personal guarantees hung on the bank debt. Untangling one knot without touching the others was impossible.
- An infected distressed asset. The debt, the property encumbrance and the licence all sat in one legal entity. It could neither simply be sold nor simply be wound down - and at the same time it could not be kept next to the clean assets.
- Blurred accountability. The partners had agreed "verbally": who was responsible for what and who received how much was recorded nowhere. Any dispute would have led to paralysis.
The design principle: isolation, not lumping everything together
A common mistake is to "put everything into one legal entity to keep it simple". For a group with a distressed asset this is the worst option: you put the clean and the dirty into one pocket, and the risk of one asset becomes the risk of all. We built the opposite logic - first separate and isolate, and only then add a common owner on top.
The working rule. The distressed asset is isolated in a separate limited-liability perimeter, while the clean assets are gathered into their own. On top sits a holding company that owns the stakes but does not bear the operating risks of the subsidiaries. The risk of each node stays inside the node.
The target construction turned out to be three-tier: the holding at the top as the single centre of ownership and the point of entry for partners, separate companies for asset classes beneath it, and to the side an isolated perimeter for the distressed asset, linked to the group not by guarantees but by a transparent contract.
How we built the structure
The work proceeded in four sequential blocks. The order was critical: untangling liabilities before the owner is created is pointless, and isolating the distressed asset before the guarantees are untangled is dangerous.
We incorporated the holding company and recorded the partners' stakes in it, rather than in the scattered assets. The group now had a single owner into which assets can be contributed and through which an investor enters.
We took an inventory of all loans, guarantees and mutual obligations. Intragroup loans were closed by set-off and novation, surplus guarantees were released, and the personal guarantee on the bank debt was restructured so that it would no longer attach to the clean assets.
We left the debt, the encumbrance and the licence in a separate limited-liability entity. The link to the group was moved onto a transparent contract - lease and provision of services - with no guarantees or shared property. If this perimeter fails, it will not pull the others down with it.
The clean assets - real estate, IP, equipment - were contributed to the relevant subsidiaries of the holding. We documented the transfer of rights, the consents and the registration of encumbrances where needed, and closed the entire restructuring as a single connected package of documents.
Protecting the parties: agreements turned into documents
The structure is half the task. The other half is ensuring the partners are protected from one another and from external risks. We translated the verbal agreements into a shareholders' agreement and supporting mechanisms.
- Shareholders' agreement. We recorded the stakes, the procedure for making key decisions, the list of matters requiring both partners' consent, and the order of profit distribution.
- Protection against dilution and exit. We set out a right of first refusal, options and drag-along and tag-along mechanics - so that an investor's entry or a partner's exit follows pre-agreed rules rather than playing out in conflict mode.
- Deadlock situations. We added a deadlock resolution procedure - so that if the partners fail to agree on a matter of principle, the group has an algorithm rather than paralysis.
- Limitation of liability. Each node is a separate legal entity with a liability cap, so the risk of operating activity or of the distressed asset does not reach the partners' personal assets or the holding.
The accountability perimeter: who is responsible for what
To make the "clear accountability perimeter" a tool rather than a phrase, we mapped the roles into a matrix: for each block there is someone accountable for the result, someone who executes, and someone whose consent is mandatory.
| Area | Accountable for result | Executes | Approves |
|---|---|---|---|
| Strategy and stakes | Holding | Partners' board | Both partners |
| Operating activity | Operating company | Management | Holding |
| Assets and IP | Assets company | Management company | Holding |
| Distressed asset and debt | Isolated perimeter | Appointed director | Holding (as creditor/lessor) |
| Group finance | Management company | Finance function | Holding |
A distressed asset is not cured by hiding it in the common pile. It is isolated - and then it stops being a threat to everything else.- From G-Invest legal support practice
The result
In the end the client received a group that can be shown to an investor or a partner without caveats. The distressed asset is isolated and no longer drags the rest down, the liabilities are untangled, and the stakes and the rules of the game are fixed in the shareholders' agreement. The accountability perimeter is no longer verbal - now every question of "who is responsible for this" has a document with the answer.
What to take away from the case. A complex group is assembled not by merging into one legal entity, but by designing tiers: isolate the risk, spread the asset classes apart, add a single owner on top and lock the roles into a shareholders' agreement. A distressed asset is not a reason to postpone structuring - it is the main reason to begin it.
Frequently asked questions
Why can't I just merge all the assets into one company?
Because you put the clean and the distressed into one pocket, and the risk of one asset becomes the risk of all. If the group contains an asset with a debt or a dispute, it is isolated instead in a separate limited-liability entity, with a holding added on top that owns the stakes but does not bear the operating risks of the subsidiaries.
Why untangle cross loans and guarantees?
Cross liabilities turn the group into a single organism: enforcement on the debt of one legal entity reaches the others through guarantees and shared property. Until these links are untangled, the isolation of the distressed asset remains a fiction - formally it is separate, in fact it is connected to everyone.
What does a holding company at the top of the structure provide?
A single centre of ownership and a clear point of entry. Assets can be contributed to the holding, an investor enters through it and a stake is transferred, and the partners' agreements are recorded in it. Without it the assets belong to different people directly, and any transaction with the group runs into the question of who owns what.
How do you protect partners from one another within such a structure?
With a shareholders' agreement and supporting mechanisms: fixing the stakes and the decision-making procedure, a right of first refusal, options, drag-along and tag-along terms and a deadlock resolution procedure. This turns verbal agreements into rules that work even at the moment of conflict.
We will design your ownership structure
G-Invest lawyers will consolidate scattered assets and liabilities into a manageable holding: isolate distressed assets, untangle cross liabilities and lock the stakes and the accountability perimeter into a shareholders' agreement - so that the structure can be shown to an investor and a partner.