When a company goes through a period of financial difficulties, it may consider entering into a process with its creditors known as corporate restructuring or turnaround, in an attempt to save the company and/or its business. The procedure often entails a reorganisation of the company’s debts and may involve the sale of non-essential assets in order to keep the business afloat. In this article, corporate restructuring, we take a look at the process involved and the options available to you.
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What are the different types of Corporate Restructuring?
Typically, restructuring involves the firm entering into a contract with its creditors that specifies how the company, and its business will be run, as well as when and how much the creditors can expect to be repaid. Restructuring may also be integrated with specific statutory procedures, such as administration or a company voluntary arrangement (CVA), in order to take use of particular characteristics of such formal processes.
CVA
This is an agreement between the company and at least some of its creditors on the repayment of the company’s debts to those creditors. The arrangement requires the consent of 75% in value of the creditors present and voting at the meeting of creditors called to examine the CVA plan. Additionally, it requires 50% in value of the unconnected creditors, i.e., creditors who are not directors or affiliates of the company.
Once approved, the CVA is binding on all creditors, with the exception of secured and preferential creditors, unless they consent to be bound by it. Despite the fact that the agreement is not automatically protected by a statutory moratorium, certain companies may qualify for a temporary stay.
Separate restructuring agreement
In order to resolve the firm’s problems, the company and its creditors may be able to establish a contract governing their dealings with each other. Due to the informal nature of the transaction, all creditors who are to be bound by the agreement must consent. There will be no statutory stay imposed on creditor lawsuits and claims. Therefore, the agreement must stipulate a period during which the creditors will be unable to issue repayment claims, enforce security, or commence formal insolvency proceedings. The agreement will govern the conditions under which the creditors will be repaid and will need to address problems such as any deferral or decrease of payment amounts, any interest payable, and if the creditors will be granted new security.
Administration
This is a far more formal process in which an external administrator is brought in to operate the firm in place of the directors. An administrator can be appointed either by a court order issued during a formal hearing or by selected parties, such as the directors, filing a sequence of prescribed paperwork with the court (the “out of court method”). The administrator is granted all of the directors’ management powers and must use them in the best interest of the company’s creditors as a whole. The imposition of a statutory moratorium on the enforcement of creditors’ remedies is one of the primary advantages of administration, which can be paired with a restructuring process if a stay on claims and enforcement cannot be achieved.
What are the signs that a company might need to restructure?
Identifying a company’s financial troubles as soon as feasible is crucial for increasing the likelihood of the restructuring process’s success. Typical signs of a corporation experiencing financial difficulties include:
- a reduction in gross profit
- a decrease in market perception and reputation
- a modification to the fulfilment of contractual duties
Restructuring is invariably the best alternative for both the firm and its creditors, as it not only affords the company the ability to continue trading or running, but also affords the creditors the best chance of getting reimbursed.
Depending on their position in the order of priority of creditors, formal bankruptcy proceedings may not be the best option for creditors, since they may not be able to recover some or all of their money.
However, restructuring will only be appropriate for organisations with a viable business model, as there must be at least some chance of success for the company or its business. In the absence of a viable business model, the only viable option would be to commence formal insolvency proceedings after obtaining the necessary advice.
How we can help
We have a proven track record of helping clients deal with the process involved in corporate restructuring. We will guide you diligently and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting. You can read more about the range of corporate services we offer by clicking here: https://blackstonesolicitorsltd.co.uk/corporate-legal-services/
How to Contact Our Corporate Solicitors
It is important for you to be well informed about the issues and possible implications of a restructuring strategy. However, expert legal support is crucial in terms of ensuring your business is set up correctly.
To speak to our Corporate solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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