Restructuring refers to the process of making significant changes to the legal, debt, operations or ownership structure of a business.
The main aim of restructuring is to make an organisation more profitable or suitable for its business needs.
Where the question of solvency arises, restructuring generally refers to the reorganisation of debt and other financial obligations with a company’s creditors without entering into formal insolvency.
Seek expert advice early
The key to a successful restructure is to not wait too long to seek expert advice. Heed warning signs as any delay reduces the options to turn your business around and increases the risk of its failure.
Understand first – then act
Directors need to understand the problems within their organisation first by seeking advice from an expert – who can then design tailored restructuring plans to suit their situation.
Restructuring for individuals
Restructuring for individuals focuses on reaching Informal Debt Agreements with their creditors to resolve financial difficulty without having to enter a formal insolvency process.
A members’ voluntary liquidation (MVL) is a formal process that allows a company’s shareholders to appoint a liquidator to a solvent company.
This means they can distribute the company’s assets to its shareholder(s) in accordance with its constitution and formally close down the company.
At the conclusion of a Members’ Voluntary Liquidation the company is deregistered and ceases to exist.
Important amendments to the Corporations Act 2001 were passed in September 2017. The amendments provide a ‘safe harbour’ from liability for directors for insolvent trading if their company is undertaking a restructure outside of a formal insolvency appointment.
No personal liability
With the Safe Harbour legislation, provided the company meets certain key criteria, the directors can now attempt to restructure companies without risking personal liability for insolvent trading.
Engage an expert
Being able to successfully rely on the Safe Harbour legislation means engaging an expert Safe Harbour advisor at the first sign of trouble in order to design and implement a plan which protects the directors from personal liability.
Independent Business Reviews (IBR) are used when there are concerns or conflicts between a business and its stakeholders. IBR’s are also useful to directors and management as they provide an independent strategic assessment of a business’ performance.
Assess business health
A secured lender or funder can use an independent insolvency and corporate finance expert to assess the overall financial health of the company. That is often our IBR focus.
Strategic performance review
From a company perspective, our IBRs provide directors and management with a strategic performance review pathway for improved financial and operational performance.
An Informal Debt Agreement is an arrangement between a debtor and a creditor where the debtor reaches an agreement to pay the amount owed under terms which are outside the original repayment terms.
There is no impact on your credit score or history.
They are not legally binding and are dependent on creditors’ goodwill.
Informal Debt Agreements are a flexible method to reach an agreement with your creditors without going bankrupt. Informal debt agreements may involve, but are not limited to:
- negotiating a reduced amount in turn for a one-off lump sum payment
- general reduction in the repayment amount
- waiver of interest or negotiating a lower interest rate.
Engage an expert
The key to generating goodwill is to engage an independent expert to provide your creditors with an assessment of the viability of your proposed debt agreement and negotiating its terms.
Members’ Voluntary Liquidation
A members’ voluntary liquidation or MVL, is a liquidation of a solvent company initiated by shareholders for the purposes of winding up the Company and distributing its assets in accordance with the Company’s constitution.Download
The safe harbour provisions of section 588GA of the Corporations Act 2001 (“the Act”) provide directors with a form of defense to potential breaches to the insolvent trading provisions of the Act when attempting to restructure their company outside of formal insolvency.Download