Restructuring – what is it?
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.
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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.
- Is My Company Insolvent
- Voluntary Administration