Business Restructuring

What is business restructuring?

If your company is facing financial difficulties but the underlying business is viable, restructuring may allow it to survive. Restructuring means making changes to your company’s finances, operations, or legal structure to address the problems that are causing distress without necessarily closing the business down.

There is no single “restructuring process.” The right approach depends on the severity of the situation, the nature of the debts, and the willingness of creditors to engage. Options range from informal negotiations with creditors through to formal court-supervised procedures.

The most important thing is to act early. The sooner you seek advice, the more options you have. By the time creditors are threatening legal action, the window for a successful restructuring narrows significantly.

What does business restructuring involve?

Business restructuring can take many forms, but most involve one or more of the following:

• Debt restructuring: renegotiating the terms of your debts such as extending repayment periods, reducing interest rates, converting debt to equity, or agreeing to write off a portion of what’s owed
• Operational restructuring: making changes to how the business operates such as cutting costs, closing unprofitable divisions, renegotiating contracts, reducing headcount, or streamlining processes
• Financial restructuring: bringing in new funding, refinancing existing facilities, or restructuring the company’s capital to improve cash flow and solvency
• Corporate simplification: reorganising a group structure to remove dormant subsidiaries, reduce compliance costs, and eliminate inefficiencies

In many cases, a successful restructuring combines several of these elements. The aim is always the same: to stabilise the company’s finances and create a platform for sustainable trading going forward.

Formal restructuring options

When informal negotiations with creditors aren’t enough, there are several formal procedures available under UK insolvency law that can support a restructuring strategy:

Company Voluntary Arrangement (CVA)
A Company Voluntary Arrangement (CVA) is a legally binding agreement between the company and its creditors to repay a proportion of its debts over a fixed period, typically three to five years. The company continues to trade during the CVA and uses future profits to pay current debts. Creditors representing at least 75% of the total debt by value must approve the proposal. A CVA is most suitable for companies that are trading profitably but have built up unsustainable levels of historic debt.

Company administration
Placing a company into administration provides immediate legal protection from creditor action through a moratorium. An administrator takes control of the business and works to rescue it as a going concern, find a buyer, or achieve a better outcome for creditors than liquidation would. Administration is particularly useful when the company needs breathing space from acute creditor pressure, such as a winding up petition or bailiff action.

Pre-pack administration
A pre-pack administration involves arranging the sale of the business before an administrator is formally appointed. The sale completes immediately on appointment of the insolvency practitioner and helps to both preserve the going-concern value of the company and protect jobs. Pre-packs are often the most effective way to rescue a viable business from an insolvent situation.

Restructuring plan (Part 26A)
Introduced by the Corporate Insolvency and Governance Act 2020 (CIGA), a restructuring plan under Part 26A of the Companies Act 2006 is a court-supervised procedure that allows a company to propose a compromise or arrangement with its creditors and shareholders. Its most powerful feature is the ability to impose a deal on dissenting creditor classes (known as cross-class cram-down), something a CVA cannot do. BTG Begbies Traynor has achieved landmark rulings for the implementation of restructuring plans for mid-market and SME companies.

Standalone moratorium
Also introduced by CIGA 2020, the standalone moratorium gives eligible companies a 20-day breathing space from creditor action (extendable to 40 days) while they explore rescue options. A licensed insolvency practitioner acts as monitor during the moratorium. This can be a useful first step before committing to a specific restructuring route.

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Informal restructuring options

Not every restructuring strategy requires a formal insolvency procedure. If your company’s difficulties are manageable and creditors are willing to engage, an informal approach can be faster, cheaper, and less disruptive:

Creditor negotiations
In many cases, creditors would rather agree to revised payment terms than push a company into insolvency as they’re likely to recover more from a trading company than from a liquidation. An experienced adviser can negotiate with creditors on your behalf, agreeing extended payment terms, temporary payment holidays, or partial debt write-offs.

HMRC Time to Pay arrangements
If your company owes money to HMRC, a Time to Pay (TTP) arrangement allows you to spread the repayment over an agreed period. Time To Pay arrangements are negotiated directly with HMRC and can cover VAT, PAYE, corporation tax, and other tax debts. They’re one of the most common forms of informal restructuring for SMEs.

Refinancing
Sometimes the issue isn’t the business itself but its funding structure. Refinancing existing debt, such as replacing expensive short-term borrowing with longer-term facilities, bringing in new lenders, or restructuring existing covenants, can stabilise the business. An independent business review is often the starting point, providing an objective assessment of the company’s viability that lenders can rely on.

Operational changes
Cost reduction, renegotiating supply contracts, closing unprofitable product lines, downsizing premises, or reducing headcount can all improve the company’s financial position without the need for a formal insolvency procedure. These changes are often most effective when combined with a financial restructuring.

When is restructuring no longer an option?

Restructuring requires a viable underlying business. If the company has no realistic prospect of returning to profitability, or if its debts are so severe that no realistic repayment proposal would satisfy creditors, then restructuring is unlikely to work. In that case, a Creditors’ Voluntary Liquidation (CVL) to close the company in an orderly way is usually the most appropriate option.

The key warning signs that restructuring may no longer be viable include:

• Creditors have already issued a statutory demand or winding-up petition against your company
• The company has been loss-making for an extended period with no clear path to profitability
• Creditors are unwilling to engage in negotiations
• The company’s liabilities significantly exceed its assets and you have been turned down for additional funding
• You’ve identified warning signs of insolvency and the position is deteriorating

Even in these situations, acting early gives you more options. Administration, for example, can provide the moratorium needed to attempt a rescue even when creditor pressure is acute.

What should I do next?

If your company is in financial difficulty, don’t wait until the situation becomes a crisis. The sooner you get advice, the more realistic the prospect of saving the business is. At BTG Begbies Traynor, we offer a free, confidential consultation where we’ll assess your company’s position and explain what options are available. For a broader overview of all insolvency options, see our guide to company insolvency options.