Businesses have a constant need to evolve in order to meet new demands, new laws, new economic trends and ever-changing politics.
With Brexit looming over the UK economy and businesses continuing to suffer from the fallout of COVID-19, now more than ever companies need to change to meet the new normal head-on.
In these unprecedented times, more businesses than ever before are taking the opportunity to restructure or are being forced to restructure by events outside of their control. In this article, we ask our business advisory team to explain what corporate restructuring is and what an effective restructuring plan could look like.
What Is Corporate Restructuring?
Corporate restructuring occurs when a company implements changes that (often drastically) reorganise a business in order to meet new demands. Corporate restructuring is commonly used as a way to turn around failing businesses or companies that have become insolvent.
There are other reasons too. Companies might restructure if they are taken over by new owners, or if they are incorporating newly acquired businesses into their existing model. Companies can restructure for legal reasons, or if they are looking to enter into new markets or provide new products or services. Corporate restructuring can be a short-term, rapidly implemented response to insolvency, or it can be a long-term solution for continued profitability of the business.
Here are the major reasons companies might undertake corporate restructuring:
- To avoid insolvency
- To improve profitability
- To lower overheads and costs
- To simplify management hierarchies
- In preparation for sale
- To take over or merge with other businesses
- For continued or future expansion into new markets
- To meet legal requirements
- For improved tax efficiency
Corporate restructuring is generally undertaken by financial advisors, such as licensed insolvency practitioners, who can offer expert yet impartial advice to company directors.
Different Types of Corporate Restructuring
Corporate restructuring plans often fall into one of two major categories: organisational restructuring or financial restructuring.
Organisational restructuring focuses on creating a more efficient company hierarchy, streamlining departments or merging with other companies. Financial restructuring is focused purely on the company’s finances and can involve restructuring debt or becoming more tax-friendly.
If a business is struggling, then a restructuring plan could involve both organisational restructuring and financial restructuring in order to get back on track. Often, restructuring plans are implemented at the behest of creditors looking to get the money owed to them before a company is forced into liquidation.
Before a plan is put into action, the business will meet with an insolvency practitioner and their creditors in order to agree on the best restructuring plan for all parties involved.
Let’s take a look at common corporate restructuring plans in more detail.
Debt Restructuring Plans
Debt restructuring plans are a common method of financial reorganisation that’s often implemented by a business in financial distress. When a company’s debts become too much and outweigh their cash intake, then the company enters into insolvency (when debts can no longer be paid).
Insolvency can lead to liquidation and the winding down of a company if not dealt with rapidly, but this doesn’t need to be the case. Creditors are just as interested in the business surviving as the business owners are (they want to be paid, after all), and debt can be restructured through a variety of insolvency tools.
The most popular method of debt restructuring is a Company Voluntary Arrangement (CVA). This puts a hold on creditors chasing down payments and allows debt to be restructured into one lump sum so it’s more manageable for the business to pay. Interest rates are reassessed, as are payment dates and payment terms.
Cost Restructuring Plans
Cost restructuring plans focus on lowering the costs that a company needs to pay in order to do business. By lowering business costs, a company can improve profitability, pay off debts and escape the threat of insolvency.
Business overheads are often much higher than they need to be, particularly for companies that have grown naturally but have become unwieldy. Independent advisors can provide an impartial overview of a company’s financial costs, and suggest ways to significantly reduce them.
Cost restructuring can involve the closing down of unnecessary offices or streamlining of different departments, or it can be as simple as cutting down on energy costs or switching suppliers to find better deals.
Tax Restructuring Plans
Tax restructuring is often used to help businesses cut down on their outgoings (to cut down on taxes paid) and to become more profitable.
Businesses, especially larger corporations, aren’t always run in a tax-efficient manner. There are however many ways to lower tax bills by streamlining the company, by moving operations abroad, or by making the most of tax breaks and opportunities offered by the government.
Mergers and Acquisitions
Mergers and acquisitions allow companies to restructure in a major way. Mergers occur when two businesses merge together to become one company. This involves major restructuring but can be massively advantageous to both companies in terms of long-term survivability and profitability.
Acquisitions occur when one business acquires another. This again involves massive corporate restructuring, as one company takes over another business. The business being taken over can be incorporated into the existing structure in numerous ways, either wholly or in part.
Businesses that are preparing to be taken over are often also subject to corporate restructuring. They may be streamlined or restructured entirely to make them more attractive for sale or to fit in more effectively with the company they are to be acquired by.
Contact Irwin Insolvency Today for Your Free Consultation
With years of experience in the insolvency sector, Irwin Insolvency can provide the expert advice and analysis your business needs to survive these trying times. We offer a range of insolvency services and are well versed in implementing successful corporate restructuring plans. Our insolvency practitioners are up to date on the latest news, advice and market trends, and are ready to help you. Contact Irwin Insolvency today for your free consultation.