Sometimes, financial pressures may mean that you need to consider restructuring some of your debts or liabilities.
‘Restructure’ means to “organise differently” and in the business context the term is most often used to describe the steps through which a business’ financial liabilities are organised in a different way to enable the business (and therefore value) to be preserved or enhanced.
In particular, the relationship between farm business and non-farm business assets can often be a close one. A holiday letting is a good example. How assets are used (or not as the case may be) could have a ‘knock on’ effect to the value of all business and non business assets. Sometimes an insolvency procedure might be the vehicle used to perform the restructure but not always. Of equal importance are non-statutory agreements and informal processes.
The outcome and scope of the restructure will largely depend on how pressing or extensive the business’ financial liabilities are, the commercial and economic factors operating in the business’ markets, the availability (or otherwise) of credit and the attitude adopted by 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 business) by invoking an insolvency procedure of its own. A common example would be a petition presented to the Court by a creditor seeking a bankruptcy order, or a creditor with security appointing a receiver to sell off land to pay its debt.
Proactive or reactive
The catalyst to restructure might be a realisation that change needs to be made in order to avoid or mitigate a future outcome: a proactive restructuring. Alternatively, it might be forced on the business as a result of changing market or economic conditions in the farming sector – a reactive restructuring. The recent events affecting oil and commodity prices are a good example where different organisation has been imposed by factors outside of the control of the relevant sectors. In addition, what might ‘Brexit’ mean or not mean for farming?
What also needs to be considered is the effect on your business of someone else’s restructuring. How would you adapt if your feed or fertilizer supplier changed credit lines 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. Sound legal input is one of the tools that can help 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 farming business’ position from creditors hostile to the proposed plan.
If you have a question or query for Andrew Knox, partner in our restructuring and insolvency team please email insolvency@stephens-scown.co.uk or call 01392 210700.