Restructuring

Companies go through a restructuring process when they are looking to make significant financial and/or operational changes to their business. Restructuring often occurs when a business is in financial distress as it can be an effective way in reducing costs by dealing with loss-making divisions/locations and reviewing overheads. A company does not need to be insolvent to go through a restructuring; indeed, it can be an effective way of building resilience into a business, especially if it has been affected by a one-off event. By restructuring your business, you can improve its performance and therefore its viability.

There are different ways to restructure a business and each one is dependent upon the company’s circumstances. Examples include selling off a division, restructuring the company to reduce overheads and closing loss-making divisions to make the business more viable. In order to guide you through the most appropriate routes for you and your business, our team would first take some time to understand your business and its processes, before making suggestions as to the best way forward.

A Restructuring Plan (“RP”) is a new tool which has become available following the implementation of the Corporate Insolvency and Governance Act 2020. It is based upon a Scheme of Arrangement (“Scheme”) however it is different to a Scheme in that a Scheme requires each class of creditors to approve the proposals whereas under an RP, the Court can sanction the scheme via a cross-class cramdown, which enables dissenting creditors to be bound by the RP. Further details can be found in our article here.

Cash is the lifeblood of any business – without it, a business can only survive for a limited amount of time. We are experienced in dealing with businesses that are experiencing cashflow difficulties. Sometimes it can be as result of a fall in turnover or it may be that the business has suffered a significant bad debt. Seeking advice from our team early is the best option as we can work with management to understand the cause of the problem and then suggest solutions to manage the position.

Creditor pressure manifests itself in different ways – a supplier may seek to collect their goods, a landlord may seek to exercise forfeiture or distraint, a creditor may threaten you with legal proceedings (either by way of a County Court Judgement or a statutory demand) or suppliers may threaten to put your account on stop. If you recognise any of these issues, you should seek advice from our team, who will be able to work with you to manage your creditors’ expectations whilst the issues within your business which are causing the creditor pressure can be reviewed and a strategy to deal with them is put in place.

We would recommend that you seek advice early in this situation as failure to do so could lead to potential personal liability for directors – have a look at our article on this subject for further information.

A Moratorium is another restructuring tool which was introduced by the Corporate Insolvency and Governance Act 2020. A moratorium is designed to provide breathing space for a company that is suffering short to medium term cash flow difficulties (usually down to a one-off event) but the underlying company is viable. Further details can be found in our article here. You should note that a Licensed Insolvency Practitioner is needed to act as a Monitor of the Moratorium process – our Restructuring and Insolvency team is therefore able to assist you, should this be an appropriate option for your business.

A personal guarantee is a type of security that many lenders request when you take out finance for your business. It is often found within the terms and conditions for unsecured loans, which, although there is no security provided by the company, allows loan providers to seek the outstanding monies from the provider of the personal guarantee (usually the director) should the company be no longer in a position to pay (e.g. should it enter an insolvency process). For further information, have a look at our article.

Sometimes you may need to change your finance provider – the existing relationship might have broken down or your funder may have taken the decision to exit from a particular sector. We have experience in dealing with these situations where we work with management and their lender (both together and independently) to agree an exit strategy and find an alternative funder for the business.

A Members’ Voluntary Liquidation (“MVL”) is a great way of extracting value from a company that has come to the end of its lifecycle. Whilst an MVL is also an excellent way of closing down a subsidiary that is no longer required, an MVL is also extremely helpful if you have traded the business in the past, as it deals with contingent liabilities. An MVL is a solvent liquidation and therefore needs a Licensed Insolvency Practitioner to be appointed as the Liquidator. Further details of the MVL advantages can be found here.