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What is a Business Restructure?
When you hear the term restructuring a business, it can mean many things, however when in difficulty, the term is usually associated with setting up a new company with the same directors and shareholders and operating and trading the business through that entity and closing the old company with the debt. This happens when the business is viable but the company isn't.
Why restructure a business?
There are many instances where a director has run a successful business and then something happens (e.g. Covid or Brexit) that no one could predict or avoid, stops everything in its tracks and the company takes on debt in order to survive.
If this debt becomes too much to service, restructuring becomes an option because the business isn't the problem, the company debt is.
How do I know if I should restructure?
Firstly you would need to understand if it's the correct option and ask questions like:
- "Why has the company failed?"
- "Is the business still viable?"
- "What implications and hurdles would need to be overcome before taking this route and committing to the business again?"
How to restructure a business
Restructuring can be done by 2 ways:
1. Pre Pack
This is when a sale is agreed with the proposed Administrator and Directors of the new company to purchase the business and all assets and goodwill. Once agreed, the company enters into Insolvency and immediately afterwards, the new company is trading the business. This is a seamless transition.
The company could cease to trade and then a new company purchases some of the assets through the liquidator once appointed.
This is more common for owner managed businesses, where there is one director and little value in the company, as the main asset is the actual Director/Business Owner.
Seek advice first
You need to go through the correct process and time is usually a factor, which is why it's best to understand as early as you can your options and how things affect you - especially when you wish to use the current (insolvent) company's trading name, or a similar sounding name. If things are not done correctly, you could breach rules like Section 216 of the Insolvency Act which have huge personal implications.
Please speak to one of the team today to understand your options if this is the route you are looking to take.
"Restructuring is a complicated process, so it's imperative you seek help and advice before you do anything else..." Jonathan Cooper, Founder and DirectorGet in Touch