Which restructuring approach is right for your company?
Financial restructuring is more complicated than moving some tables around and marking out one meter spaces but it’s a chance to save a business and fundamentally improve its financial footing.
Many companies will be under severe financial duress even if they are planning to open. They may be behind on their rent or owe their suppliers or be chasing payments they’re owed.
No matter what the cause of their difficulties, business restructuring could be their last, best chance to save the company and work with creditors to reorganise their debts.
What are the key components of a successful business restructure?
For any restructuring to work there has to be a reasonable chance for the company to become a viable business again. If there isn’t one then insolvency would ultimately be the only reasonable option, especially for unsecured creditors.
- Creditors support
Any successful restructuring rests on the goodwill and forbearance of your creditors.
Keeping them informed, updated and letting them feel an actual part of the process will be critical in keeping their support for your plans.
Here’s why – disgruntled creditors can make demands for payment through a statutory demand or initiate formal insolvency proceedings through a winding-up order.
These actions are currently suspended until September 30th 2020 but they will be operational again by then and any of them could effectively invalidate any agreement reached with other creditors.
- Claims and enforcement
If any restructuring effort is going to be successful then agreements have to be reached that will prevent creditors from making any demand for payments; enforcing security or initiating any formal insolvency procedures. It needs certainty and commitment to prevent it from being undermined by a single, determined creditor.
When a company pursues a restructuring agreement then they will usually look to enter a contract with their creditors outlining how the business will operate during this period and how much they could ultimately expect to be paid.
It can also be beneficial to combine restructuring with a statutory insolvency process such as administration or a company voluntary agreement (CVA) too – as they come with their own range of legal protections.
This formally sets out how a company and its creditors will continue to deal with each other to help solve the company’s issues.
It’s an informal rather than legal procedure but would still require the consent of all creditors and parties bound by the agreement.
There’s no statutory stay imposed on actions or claims by creditors so any agreement should set out the provisions within which creditors promise not to make repayment demands, attempt to enforce security or initiate formal insolvency proceedings of their own. Although currently banned, a restructuring agreement could carry over this date.
Any agreement would also regulate terms on which creditors could be repaid including possible deferments, temporary or permanent reductions, interest payments and whether there would be any new securities granted to creditors.
Administration is a formal procedure whereby an external administrator manages the company instead of its directors.
One of the many advantages of administration is that it places a statutory moratorium on all of the company’s creditors which makes it ideal to work with a separate restructuring process.
A CVA is another administrative procedure which gives the legal protections of an administration but also allows the business to negotiate away a proportion of outstanding debt too.
75% of creditors have to agree to the CVA and if passed becomes binding on them – providing the administrator with additional time to put together a restructuring or rescue plan for the business.
Another advantage of a CVA is that it allows a company to remain trading while the process is ongoing – allowing it more opportunity to eventually emerge stronger, resilient and profitable.
Restructuring is just one of the array of available options for businesses struggling to reopen from lockdown and get their business ready to receive customers – virtually or physically.
The earlier a company gets in touch, generally the more choices they have when it comes to choosing a path forward.
We’re available to make a virtual appointment whenever it’s convenient to discuss where you see business going and what routes are open for you to get there.
The situation and rules themselves are changing so the earlier you make contact, the quicker we can get to work with you.