Business restructuring is a crucial process that many companies undergo at some point in their lifecycle. It involves making significant changes to an organisation’s structure, operations, or financial model in order to adapt to new market conditions, improve performance, and increase profitability.
One of the most common types of business restructuring is corporate restructuring, which can involve mergers, acquisitions, divestitures, or reorganizations. Another key aspect of business restructuring is administration, which refers to the process of managing a company’s affairs during a period of financial difficulty or insolvency.
In this context, restructuring can help to turn around a struggling business or ensure that its assets are managed effectively in the event of a bankruptcy or liquidation.
Overall, business restructuring is a complex and multi-faceted process that requires careful planning, effective communication, and a commitment to achieving long-term success.
What is business restructuring?
Business restructuring is a process that involves making significant changes to an organisation’s structure, operations, or financial model with the aim of improving performance, increasing profitability, and adapting to new market conditions. It may involve a wide range of actions such as mergers, acquisitions, divestitures, reorganizations, downsizing, and cost-cutting measures.
The process can be initiated by a variety of factors such as changes in the competitive landscape, declining revenues, or changes in market demand. Business restructuring requires careful planning and execution to minimize disruption to the organization and ensure that the desired outcomes are achieved. When done correctly, business restructuring can help companies to remain competitive, overcome financial difficulties, and achieve long-term success.
Saving a business through debt restructuring
Debt restructuring is a common strategy used to save businesses from financial difficulties. It involves renegotiating the terms of existing debt in order to make it more manageable and sustainable for the company. This may involve extending the repayment period, reducing interest rates, or even writing off a portion of the debt. The goal of debt restructuring is to alleviate the financial burden on the business and provide a pathway to long-term financial stability.
The process of debt restructuring requires careful planning and communication with stakeholders such as lenders, shareholders, and creditors. It is important to have a clear understanding of the company’s financial situation, including its assets, liabilities, and cash flow. A thorough analysis of the business model, market conditions, and potential risks should also be conducted. With a solid plan in place, the company can negotiate with its creditors to achieve more favorable terms for its debt. By successfully restructuring its debt, a company can reduce its financial stress and create a path forward for growth and profitability.
Read more: What is a Scheme of Arrangement
The advantages of restructuring
Restructuring a business can have a number of advantages that can help improve its performance and achieve long-term success. Here are some of the key benefits of restructuring:
- Improved financial performance: Restructuring can help companies reduce costs, increase efficiency, and optimize their operations, which can lead to improved financial performance and profitability.
- Adaptation to changing market conditions: By restructuring, businesses can better adapt to changing market conditions and stay competitive in an ever-changing business landscape.
- Enhanced organizational structure: Restructuring can help create a more streamlined organizational structure, which can lead to improved communication, collaboration, and decision-making.
- Increased agility and flexibility: Restructuring can help businesses become more agile and flexible, enabling them to respond quickly to changing market conditions and customer needs.
- Better alignment with business goals: Restructuring can help ensure that a company’s structure, operations, and financial model are aligned with its overall business goals and objectives.
- Improved employee morale: Restructuring can lead to a more positive and productive work environment, which can improve employee morale and retention.
Overall, restructuring can be a valuable tool for businesses looking to improve their performance, adapt to changing market conditions, and achieve long-term success.
How can a company be saved through restructuring?
Corporate restructuring is a strategic process that aims to enhance the financial and operational efficiency of a company. The key to successful restructuring is a customized approach, tailored to the unique needs and circumstances of each business. Factors such as current financial and operational position, short- and medium-term outlook, and long-term goals must be carefully considered. There are several types of restructuring processes that may be appropriate depending on the specific situation:
- Financial restructuring: This process involves a review of the company’s financial structure and the implementation of changes to improve its financial position. It may involve renegotiating debt terms, raising capital, or divesting non-core assets.
- Operational restructuring: This process focuses on improving the company’s operational efficiency by streamlining processes, reducing costs, and improving productivity.
- Strategic restructuring: This process involves a review of the company’s overall strategy and may involve changes to its business model, product offerings, or target markets.
- Organisational restructuring: This process involves changes to the company’s organizational structure, including the consolidation of departments, changes to reporting lines, or the introduction of new roles and responsibilities.
By carefully considering each of these restructuring processes, businesses can develop a customized approach that will help them achieve their goals and improve their overall performance.
Here are the main restructuring processes which can be considered:
Administration
Corporate debt restructuring can be a challenging process that often arises when a company is facing financial difficulty, or as part of a formal insolvency process such as company administration. The ultimate goal of administration is to preserve viable elements of a distressed company and enable trade to continue. In situations where this is not possible, administrators will work to achieve better returns for creditors than would be possible through liquidation.
If a company enters administration, it is granted a moratorium that provides the company with a breathing space, as well as legal protection, while the restructuring process takes place. This can be particularly helpful if the company is not at risk of imminent insolvency or litigation, allowing the restructuring process to take place while the business continues to operate. By providing a structured framework for corporate debt restructuring, administration can help companies navigate difficult financial situations and emerge stronger and more competitive in the long run.
Pre Pack Administration
Pre-pack is a unique type of administration process that offers distressed companies a chance to sell their assets prior to the appointment of an insolvency practitioner. This allows the sale to be negotiated in advance, potentially maximizing the value of the assets and enabling the business to continue trading under new ownership. In many cases, the buyer is the old company’s directors, who purchase the assets on behalf of a new company (known as a ‘newco’).
Once the pre-pack sale has been agreed, an insolvency practitioner will be appointed, and the transaction can be completed almost immediately. The old company is then placed into liquidation, and any assets that were not part of the sale are used to settle outstanding debts. Despite the changes in ownership, employee rights are protected during pre-pack administration, thanks to the Transfer of Undertakings (Protection of Employment Regulations (TUPE)).
All employees are transferred to the newco and retain their existing employment terms and conditions. While some redundancies may occur due to changes in the company’s structure, TUPE ensures that employees are treated fairly throughout the process.
Company Voluntary Arrangement (CVA)
A Company Voluntary Arrangement (CVA) is a formal debt restructuring process that can provide relief to an indebted company by reducing the cost of its existing debts. By creating a formal payment plan between the company and its creditors, a licensed insolvency practitioner can facilitate negotiations and work towards a mutually beneficial payment plan that satisfies creditors and frees up cash flow for the distressed company. If 75% (by value) of creditors agree to the CVA, it becomes legally binding on all parties.
Typically lasting between 3-5 years, a CVA involves monthly repayments to the appointed insolvency practitioner, who will distribute the money between creditors on a proportional basis. Depending on the company’s ability to repay, some debt may be written off as part of the process. With the supervision of a licensed insolvency practitioner, a CVA can help struggling companies regain control of their finances and ultimately emerge stronger and more competitive
Time to Pay (TTP) Arrangement with HMRC
In order to restructure tax arrears, a company may opt for a Time to Pay (TTP) arrangement which provides a manageable payment plan. The negotiation process for TTP is with HMRC, and the final decision is made by them. The plan runs for a period of 3-6 months, but it can be extended to up to 12 months depending on the situation.
When negotiating the TTP plan with HMRC, it is crucial to ensure that the repayment amount is sufficient to clear the tax debt promptly, while also being affordable for the company to keep up with. Employing the services of a professional to facilitate these negotiations can increase the likelihood of a successful TTP arrangement being secured.
HMRC has the authority to reject the TTP if they doubt the company’s ability to sustain the proposed repayment amount, and will seek alternative ways to recover the debt.
Finance
Reevaluating a company’s financing is a crucial step when it comes to ensuring its survival during difficult times. During the restructuring process, it is important to assess the suitability of the company’s existing financing obligations and determine whether new cash needs to be injected into the business. Although accumulating too much debt can be damaging to a company, borrowing, if used correctly, can create new opportunities and act as a safety net.
High-interest debt can significantly impact a company’s monthly cash flow. However, depending on the company’s position, restructuring existing debt to a lower interest rate or spreading the owed money over a longer period could be possible to save on cash flow and secure the company’s immediate future.
In other cases, acquiring new funding sources could provide the company with the cash boost it needs to launch a growth or expansion project or stabilize cash flow if it has become tight. This could take the form of traditional loans or specialized borrowing options such as invoice finance, asset-based lending, or short-term bridging loans.
Streamlining and cutting costs
Streamlining and simplification are essential aspects of any restructuring process. Companies often have non-performing areas or departments that can be closed or downsized to free up funds and resources for more profitable areas. This leads to a leaner, more efficient organizational structure, which in turn results in increased operating cost reductions and improved efficiency.
Restructuring also increases a company’s resilience and sets it up well for the future. By taking into account potential threats and identifying risks, companies can ensure that they are fit for purpose in the present time, and that their stability, stakeholder value, and long-term viability are preserved. A successful restructuring process leads to a more stable and sustainable business, able to navigate challenges and capitalise on opportunities.
Read more: Liquidate my business
Frequently asked questions
Business restructuring is a process that a company goes through to make significant changes to its operations, structure, or finances in order to improve its profitability, efficiency, and long-term viability.
Companies may consider restructuring for a variety of reasons, including declining profitability, high debt levels, changes in the market or industry, mergers or acquisitions, technological advancements, and shifts in consumer behaviour.
Business restructuring can result in a number of benefits, such as increased efficiency and productivity, improved financial performance, reduced costs, better alignment with company goals, increased market share, and improved stakeholder value. However, it can also involve significant risks and challenges, such as disruption to operations, employee layoffs, and legal or regulatory hurdles. What is business restructuring?
What are some common reasons why a company might consider restructuring?
What are some of the potential benefits of business restructuring?
Conclusion
In conclusion, corporate restructuring is a vital process for businesses and companies facing financial difficulties, market changes, or organisational inefficiencies. It enables companies to streamline operations, reduce costs, and reposition themselves for future growth and success. To remain competitive and relevant in today’s ever-evolving business landscape, corporate leaders must proactively evaluate their company’s structure and make the necessary changes to adapt.
Therefore, it is crucial that businesses recognize the value of restructuring and seek professional assistance to ensure a smooth and effective transition. By doing so, companies can secure a solid foundation for long-term success and maximise their potential in the marketplace.
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.