© Copyright Acquisition International 2024 - All Rights Reserved.

Article Image - Restructuring options for financially-distressed employers
Posted 17th March 2021

Restructuring options for financially-distressed employers

Whilst support has been made available by the Government to assist employers, the pandemic has still seen huge numbers of job losses. The pain has been felt in all sectors. So, what restructuring options are available for directors to consider in the hope of rescuing their companies’ businesses?

Mouse Scroll AnimationScroll to keep reading

Let us help promote your business to a wider following.

Restructuring options for financially-distressed employers
business restructuring

By David Mohyuddin QC, Radcliffe Chambers

Whilst support has been made available by the Government to assist employers, the pandemic has still seen huge numbers of job losses. The pain has been felt in all sectors. Retail, leisure and hospitality have all been hit very, very hard. Weakened demand in other sectors has accelerated their need to reconsider their staffing needs. From Topshop to Jaguar Land Rover to Pizza Express, employers have been losing employees in extraordinary numbers. And it’s not just high-profile, multi-site organisations that are suffering. Many smaller businesses are also facing financial uncertainty at best.

It is a sad fact that, sometimes, losing some staff has to form part of a company’s rescue plans. But there are restructuring approaches that will allow some employees to be retained. However, if directors know or should know that their company is insolvent or that it is probable that their company will become insolvent, they owe a duty to put creditors’ interests first. Whilst that does not necessarily prevent them from attempting rescue, it does require detailed consideration of the merits of any proposed action, looked at from creditors’ perspective. Saving jobs might not be in creditors’ interests.

So, what restructuring options are available for directors to consider in the hope of rescuing their companies’ businesses? There is a hierarchy of potentials that might be explored, ranging from informal arrangements with creditors to support cashflow to the entry into formal insolvency regimes, with all the attendant consequences.

In the first category, “live side” action might include:

  • Restructuring borrowing. Directors could approach lenders, asking them to relax covenants. It might be worth looking at the market to see what other lenders might be offering better terms, although directors ought to be cautious about borrowing more money where there is a risk of the company being unable to repay existing facilities, let alone new ones. Directors who know or should know that repayment will never be made could find themselves facing personal liability.
  • Increasing the amount of cash in the company (and thereby reducing borrowing) by reviewing payment terms – both for payments in and out. Do debtors pay late? Does the company pay early? Can extended payment terms be agreed with creditors? But exceeding agreed payment terms risks enforcement action by creditors starting court proceedings or – subject to the current restrictions – presenting a winding up petition.
  • Agreeing time to pay agreements with the Revenue. This implies commercial insolvency, however, because the debt is due but cannot be paid on time.
  • Seeking stakeholder support. Those who might be interested in the company’s survival are its trading partners (who themselves might well be under financial pressure) and its investors. In a smaller company, the directors themselves are likely to be the shareholders; they will need to decide whether they want to put more money into the business.
  • Taking advantage of governmental support options, for as long as they remain available. The Government is asking for power (to last until April 2022) to make temporary amendments to modify the impact of corporate insolvency provisions. It is not clear what amendments might be made. There might be a further extension of the current relaxations and modifications but it would not be wise to assume that. Directors should consider now what financial state their companies will be in once governmental support ends – and how they might respond.

 

In the second tier in the hierarchy are more formal arrangements where the company remains under the directors’ control and which could provide much-needed breathing space or protection whilst a company’s fortunes improve. These might be:

  • The well-known but sometimes controversial company voluntary arrangement (CVA). The company proposes a compromise with creditors (paying a certain percentage of debts due). If they approve the proposal, creditors are bound by the terms of the CVA and cannot take their own independent action against the company. CVAs can be quite sophisticated and usually last a number of months or years; the Company must comply throughout with the obligations imposed on it.
  • A moratorium, as introduced by the Corporate Insolvency and Governance Act 2020. This is a breathing-space arrangement, which is supervised by a “monitor”. They must consider that it is possible to rescue the company and they must remain of that view for the moratorium to continue. It gives the company an initial 20 days’ protection; the period can be extended by up to one year. In this scenario, it has to be accepted that the company is or probably will become insolvent.
  • A restructuring plan under Part 26A of the Companies Act 2006. This is a concept that was proposed by Government in 2018 and given effect by CIGA. It is a pre-requisite that the company is facing financial difficulty; the purpose of the plan must be the resolution of that difficulty. If certain conditions are met, the court has the power to sanction the plan despite the objection of a class of creditor (the so-called cross-class cram down). If there has been an earlier moratorium, some creditors might have an effective veto.

 

In the third tier are the formal insolvency regimes, administration and liquidation. In an administration, if there is a sale of the company’s business and assets then some jobs might well be saved; employees should automatically transfer to the purchaser. But if there is no sale or if the company goes into liquidation, then job losses are likely inevitable.

Finally, directors in these situations will benefit from specialist professional advice. Full and frank instructions should be given to the advisors. Directors ought to keep records of what the advisors are told, the advice received and the steps taken.

Categories: Finance


You Might Also Like
Read Full PostRead - Eye Icon
7 Facts That Prove Entrepreneurship Is Thriving in UK Post Brexit – Survey
Innovation
17/11/20167 Facts That Prove Entrepreneurship Is Thriving in UK Post Brexit – Survey

Entrepreneurial spirit and optimism remains high in the UK according to new UK research released by Amway.

Read Full PostRead - Eye Icon
Serry Law Office
Legal
22/05/2015Serry Law Office

Serry Law Office was established in 1937 and has been offering corporate and real estate legal services in the Arab Republic of Egypt for many of the leading national and multinational companies.

Read Full PostRead - Eye Icon
Is Gold A Promising Retirement Investment?
Finance
13/02/2023Is Gold A Promising Retirement Investment?

Retirement investments are essential for your later days, especially when you can no longer generate regular income like you used to.

Read Full PostRead - Eye Icon
Why Every Event Planner Needs a Venue Management Platform
News
24/02/2022Why Every Event Planner Needs a Venue Management Platform

Event planners need to use venue management platforms if they want their events to run as smoothly and successfully as possible. With the best venue management software, every element of an event lifecycle is covered, from registration and payment to reports a

Read Full PostRead - Eye Icon
Gloo Networks PLC IPO
Strategy
04/08/2015Gloo Networks PLC IPO

Gloo Networks PLc IPO

Read Full PostRead - Eye Icon
Rocket Lawyer Boasts $223m Investment in an Innovating Legal Industry
Innovation
22/04/2022Rocket Lawyer Boasts $223m Investment in an Innovating Legal Industry

Like with many industries, customers look to the web in search of ways to spend their money as opposed to the high street. Legal services, it seems, are following the same path. Last year, Rocket Lawyer announced a $223 million investment that was led by Vista

Read Full PostRead - Eye Icon
Global Company with a Homegrown Heart
Legal
16/02/2022Global Company with a Homegrown Heart

We take a closer look at ParrisWhittaker in light of it being named Most Outstanding Maritime Litigation Firm 2021 – Bahamas by Acquisition International magazine.

Read Full PostRead - Eye Icon
Zedra Continues Growth Plans with Acquisition of Netherlands-Based Allied Corporate Services
M&A
04/07/2016Zedra Continues Growth Plans with Acquisition of Netherlands-Based Allied Corporate Services

ZEDRA (the “Group”), the global independent specialist in trust, fiduciary, corporate and fund services, announces that it has agreed the acquisition of Netherlands-based Allied Corporate Services (“Allied”).

Read Full PostRead - Eye Icon
One of Africa’s Largest Financial Services Groups
Finance
11/10/2017One of Africa’s Largest Financial Services Groups

One of Africa’s Largest Financial Services Groups



Our Trusted Brands

Acquisition International is a flagship brand of AI Global Media. AI Global Media is a B2B enterprise and are committed to creating engaging content allowing businesses to market their services to a larger global audience. We have 14 unique brands, each of which serves a specific industry or region. Each brand covers the latest news in its sector and publishes a digital magazine and newsletter which is read by a global audience.

Arrow