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As a business owner in England and Wales, you may need to undergo a business restructuring at some point. This can be for a number of reasons, including:
- debts or financial difficulties;
- cash flow problems, or
- disputes with company directors.
Knowing how to navigate a business restructuring is vital in mitigating the stress and potential confusion associated with the process.
This article will explain some of the key features of a business restructuring. It will also outline some considerations you should keep in mind if you find yourself in this position.
What is Business Restructuring?
Restructuring your business means that you review its operational, financial, and legal structures. You do this to make sure that your business is running as effectively as possible.
Often, a restructuring process is necessary if your company is having financial difficulties with creditors. For example, you may need to restructure if you are undergoing a formal insolvency process. This is called financial restructuring. However, you may also choose to restructure your business if you wish to change operational procedures. This is usually referred to as operational restructuring.
What are the Different Types of Restructuring?
There are a number of different types of restructuring, which are appropriate for different business situations. Some examples include:
1. Debt restructuring
A debt restructuring is a common way for distressed companies to continue trading despite having issues with creditors.
A debt restructuring will often involve a ‘company voluntary arrangement’ (or CVA). This is where your company’s debts are transferred into a single payment obligation, which is usually paid monthly.
This can help you continue to operate your business without significant cash flows problems as a result of debt that you owe to lenders. Businesses can adopt CVAs to continue operating with having to liquidate assets. Once you have completed your CVA (usually after a set amount of years, e.g., 5 years), you will have paid off your company’s debts.
2. Legal restructuring
Corporate restructuring of your company’s legal structure may happen because of a shift in responsibility at the top of your company’s management.
For example, if your company has merged with or been acquired by another company, then you may have new stakeholders or company directors. These stakeholders and directors will have a say on your board resolution process. To reflect the new corporate structure, you may have to hire a team of lawyers to help draft new provisions in your company’s constitution.
3. Mergers and Acquisition Restructuring
You may have to restructure your business if you have recently completed a merger or acquisition with another business.
A merger or acquisition involves your company joining its operations with another company. Often, this can require a business restructure, especially if you are assimilating aspects of the merging company into your business.
4. Divestment Restructuring
You may also choose to divest certain aspects of your business. For example, you may choose to do an asset sale of parts of your company if it is no longer profitable. This could help your cash flow and help you save on running costs.
If you sell certain important real estate assets, for example, you may have to restructure other aspects of your business to reflect your new operations. Restructuring in this context can involve a restructuring of your business’s legal aspects, as well as its overall operations.
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How Do I Create a Restructuring Plan?
If you do decide that restructuring an aspect of your business is the correct move for you, then it is important that you revise your overall business strategy to accommodate your restructuring plan. When doing so, it is important that you have clear objectives in mind.
In this context, it can be a good idea to hire the professional services of individuals with extensive experience in restructuring, such as an accountant, a lawyer, or a consultant (or in some instances and depending on the size of your business, potentially all three). This can help you stay on top of the numbers when you are going through the restructuring process.
Given that the marginal gains from an operational or financial restructuring will be highly important for the success of your restructuring, it is important that your restructuring plan has set goals and is clear.
Key Takeaways
As a business owner in England and Wales, you may have to restructure your business as to some point. A business restructuring can help you increase efficiency in your business, get rid of weight, or reflect a new business structure that you have adopted.
Sometimes, a debt restructuring will be necessary if you are going through a formal insolvency process, in which case you will want to develop a company voluntary arrangement in which you make your debt manageable.
If you are going through a complex restructuring process, our experienced corporate lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Visit our membership page.
Frequently Asked Questions
A company voluntary arrangement (or CVA) is where your business debts are restructured. This is often in the form of a single monthly payment obligation for a set number of years.
Insolvency is when your business is unable to pay back its debts, and starts to explore options such as liquidating assets to pay off creditors.
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