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01 overview
Company restructuring allows businesses to streamline their operations during economic and market downturns. It can be utilised when businesses have mounting debt, their performance is poor, to gain tax efficiencies or when preparing for a sale, buyout or transfer of ownership.
This is a guide on company restructuring in the UK, aimed at educating business owners, directors, and legal professionals about the legal processes, options, and implications of restructuring.
We’ll also highlight the importance of expert legal advice during restructuring.
We’ve written this for:
The process of company restructuring is highly complex, it requires the expertise of business, finance and legal professionals. Our team of experienced corporate restructuring solicitors can advise on company restructuring with the guidance of insolvency practitioners.
Company restructuring, also known as corporate restructuring is the process of reorganising a company’s operations, management and finances to improve the efficiency and effectiveness of the business.
Restructuring is undertaken with the purpose of helping a business increase its productivity, reduce costs and improve its offering. It can also be utilised to help a company better meet the needs of its customers and shareholders.
As we’ve mentioned there are different types of restructuring:
There are many common reasons for restructuring including:
The main pieces of relevant legislation in company restructuring include:
When businesses follow a legal corporate restructuring strategy the court oversees the process to protect the interest of stakeholders: creditors, shareholders and employees. The court’s oversight prevents misuse of the restructuring process by company management or unfair treatment of creditors.
Courts also approve company plans. They evaluate whether a plan is fair to all parties. The plan must be approved by the courts to be legally binding.
There are important regulatory considerations during the restructuring process. Businesses must comply with FCA and other regulatory bodies.
The FCA provides guidance and oversight to firms restructuring. It ensures that restructuring plans meet statutory objectives to protect consumers and maintain market integrity. Businesses must engage with the FCA early in their restructuring process, providing detailed information so the FCA can assess whether the plans are in the best interests of customers.
Businesses can restructure in different ways depending on their needs and circumstances. In this section, we’ll detail the various restructuring tools and processes that a business can leverage.
Through debt restructuring, businesses can renegotiate their company debts with creditors. All outstanding debt can be rolled into one smaller monthly payment, which is repaid over a longer period. This can be facilitated by a company voluntary arrangement (CVA). A type of legally binding agreement between a business and their creditors.
A CVA is an agreement between an insolvent company and its creditors to allow it to pay its debts. It is overseen by an insolvency practitioner.
Like a voluntary arrangement, a scheme of arrangement or simply a scheme, allows a company to restructure its debts by reaching an agreement with shareholders. A business will propose a scheme to its creditors and set out terms and conditions.
For the agreement to be binding the scheme must meet certain statutory requirements. When it is approved, it is binding on all creditors and shareholders.
Like CVAs and schemes, a restructuring plan aims to help a company turn around its financial decline.
It can include the following measures:
Administration and liquidation are informal, formal insolvency practices. They have different outcomes. Liquidation involves selling a company’s assets and dissolving it. Administration is used to save a business experiencing financial distress. Assets are sold, and the company is restructured with a recovery plan to pay off debts to creditors.
There are three main types of financial restructuring.
Business operations can be restructured to help a business become more efficient and effective.
To streamline operations, businesses can consider downsizing, outsourcing to reduce a high wage bill, and cost reduction.
Business units can be realigned. A divestiture can be used to dispose of an asset through sale, exchange or closure. Divestitures can help businesses create value by improving operational efficiency and reducing costs.
A spin-off division can be created as a separate entity. Spin-offs are often created when a business expects a certain unit, division or subsidiary to be worth more than as part of the parent company.
Managing change during operation restructuring is essential. Employee communication and relations become important because change is always difficult for employees to deal with. Getting buy-in for changes to the way things are done will mean employees cooperate and remain productive.
There are legal considerations for businesses during operation changes. Our solicitors can advise business owners on all aspects of company restructuring, including overturning poor performance.
Potential redundancies are sensitive areas that need careful handling. Additionally, if restructuring is necessary due to debt concerns, we can assist with negotiating debt agreements with creditors.
Employee rights during a restructuring need to be considered.
These include:
When businesses begin redundancy procedures, they have legal obligations.
Businesses must:
We’ve answered a series of frequently asked questions on redundancy in restructuring if you
want to learn more.
The Transfer of Undertakings (Protection of Employment) Regulations 2006, commonly known as TUPE, state that employers must protect employee rights when:
The legislation protects employees that are legally classed as an employee in the part of the organisation that’s transferring.
Under TUPE employees are entitled to transfer to their new employer with their current employment contract unchanged and with their length of service unaffected.
Handling employee disputes and claims during a restructuring process can be challenging. It’s important for businesses to listen to their employees closely to understand the issues. Listen to team member’s concerns and grievances without bias. This is because restructuring can bring up fears for job security, change of duties and unfair treatment.
Restructuring can offer opportunities to become more tax-efficient. Reorganising the business structure can give businesses the opportunity to create a more tax-efficient setup.
Businesses can reduce their tax liabilities through deferred bonus plans. These plans allow businesses to pay bonuses over a period to reduce their tax burden. Employees can also benefit from lower tax rates.
When restructuring, a business’s supply chain can be altered, which can affect VAT registration and compliance. It’s crucial that businesses ensure that all business units are correctly registered for VAT.
It’s important to seek legal expertise in restructuring. There are many risks involved in the restructuring process, including employee disputes, operational challenges, tax implications and regulatory requirements.
At Lawhive our expert corporate restructuring solicitors can help. We have employment law and tax law specialists on hand to help you navigate the process and stick to your legal obligations.
Businesses restructure for a variety of reasons:
It depends on the size of the business and the complexity of the restructure. Typically, a restructure can range from a few months to years.
Restructuring a business can prevent insolvency. It is usually the first process to avoid insolvency. It allows businesses to agree on a repayment plan with creditors to manage repayment of their debts, without a business becoming insolvent.
There are many reasons to seek legal advice when if you are undertaking a company restructuring.
There are several financial, legal and regulatory complexities to navigate, so it’s important to be well-advised.
Act early and seek expert advice as soon as possible to ensure a streamlined, risk-free process.
Contact us today for professional assistance to discuss your case.
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