Corporate Restructuring is the process whereby an underperforming or insolvent company is brought back to financial health. It is sometimes referred to as Debt Restructuring or a Workout. Restructuring a company or business can involve a wide variety of measures including performance improvement, informal restructuring, voluntary administration or even liquidation of some companies within a group.
The restructuring process does not have to follow any set formula. In practice, the timing of a restructuring will be dictated by each particular situation. A restructuring is typically considered where a company is underperforming. It will be essential where there is the potential for a viable business but the value of the business has fallen below the amount of debt and the current debt is unserviceable.
It is often difficult for a director to figure out what position their company is in and what are the potential solutions to the problem. So we developed an online test called AskIRA. By answering four easy questions, IRA can diagnose the problem and suggest possible solutions.
A restructuring can be achieved in a short space of time or it can take years to complete. Some restructurings can be dealt with by a company entirely internally by focusing on performance improvement. That is, it is not necessary to involve external parties such as the company’s bankers or trade creditors. In more serious situations a company will need to approach its creditors and agree some sort of forbearance by the creditors whilst the company deals with its problems. This is often referred to as a “workout“. A workout can involve an informal agreement between the company and its creditors.
The formal method of achieving a restructuring is through a Voluntary Administration. We have a bundle of information and videos on Voluntary Administration. But the key point is that a company enters a Voluntary Administration with a view to entering a Deed of Company Arrangement, or “DOCA”, with its creditors. The DOCA is simply the deal that is agreed between a company and its creditors.
Where a restructuring involves creditors, the deal finally agreed between the company and its creditors need not follow a set prescription. In practice, the agreements are often quite imaginative and are designed to suit the specific needs of the situation.
In the USA, Restructurings are often done by a Court process known as Chapter 11. That term does not apply in Australia, where the nearest equivalent is Voluntary Administration.
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