Government cuts removing funding for renewable energy or the steel crisis means that businesses need to be more agile to the changing economic climate around them. Often the warning signs are clear, and businesses need to seek advice sooner rather than later, warns restructuring expert Andrew Knox.
What does restructuring mean?
‘Restructure’ means to “organise differently” and in the corporate context the term is most often used to describe the steps through which a company’s financial liabilities are organised in a different way to enable the business (and therefore value) to be preserved or enhanced.
Occasionally, an insolvency procedure might be the vehicle used to perform the restructure, equally this could be non-statutory agreements and informal processes.
What is the point? What will it achieve?
The outcome and scope of the restructure will largely depend on how pressing or extensive the company’s financial liabilities are, the commercial and economic factors operating in the company’s markets, the availability (or otherwise) of credit and the attitude adopted by the company’s creditors. Whilst most restructuring is a consensual process, it should not be forgotten that an aggrieved creditor could seek to impose its own restructuring plan (with conflicting goals to that of the company) by invoking an insolvency procedure of its own. A common example would be a petition presented to the Court by a creditor seeking an order that the company be wound up and a liquidator appointed.
The catalyst to restructure might be a realisation by a business that change needs to be made in order to avoid or mitigate a future outcome: a pro-active restructuring. Alternatively, it might be forced on the company as a result of changing market or economic conditions – a reactive restructuring. The recent events effecting British steel manufacture being a good example where different organisation has been imposed due to factors outside of the control of the relevant companies. What also needs to be considered is the effect on your company of someone else’s restructuring.
Could your business adapt if your credit line was reduced or a product or commodity you need was no longer available on the same terms, or at all?
A successful restructure relies on balancing all of these often competing factors and the value of legal input is one of the tools with which to achieve this balance. For example, by working alongside accounting, finance and valuation professionals, legal input will help to ascertain rights and liabilities, to document and implement processes and procedures and protect the company’s position from creditors hostile to the proposed plan.
Andrew is a partner in our corporate law team. If you would like to get in touch regarding the issues raised in this article give Andrew a call on 01392 210700 or email corporate.exeter@stephens-scown.co.uk