What Is a Restructuring Plan For Limited Companies?

January 30, 2024 / Business Insolvency

Most companies will encounter a few hiccups during their lifetimes. Some may face a decline in traffic and sales, others may experience a poor product launch, while others still may encounter debt-related problems. While some of these issues can be dealt with somewhat easily, others will prove difficult to overcome. In the latter case, these problems can combine and pose a serious threat to the longevity of a company. In this scenario, a company may wish to implement a restructuring plan to get back on track.

But what exactly is a restructuring plan, and how can it be of use to a struggling company?

In this article, Clarke Bell will answer these questions, cover a company’s options for restructuring, and how a company can implement such a plan.

What is a restructuring plan?

A restructuring plan is simply an identified means of solving a company’s financial and management problems. A plan to restructure a company has several aims, depending on the circumstances of the company in question. Generally, a restructuring plan identifies the main issues faced by a company, then puts forward solutions tailored to the company’s needs. Potential solutions can include a change in leadership, splitting and partial sale of a company, or downsizing of a company’s premises or workforce. A licensed insolvency practitioner can help you with these potential solutions.

Restructuring plans are also outlined in the Corporate Insolvency and Governance Act 2020, which itself falls under the Companies Act 2006. Restructuring under this act affords companies a level of flexibility they could not achieve through other insolvency procedures, and can be approved by the courts to prevent creditor interference.

What are the options for restructuring?

To be effective, a restructuring plan must be tailored to an individual company’s situation and requirements. As such, there are a variety of solutions that may be packaged into a given company’s restructuring plan. To enact a restructuring plan for an insolvent company, directors can make use of the Corporate Insolvency and Governance Act 2020, allowing them to draft a restructuring plan. This plan will be put before the courts, which will decide whether the company may implement the plan or if other actions are more appropriate. In essence, this aims to stop insolvent companies with no hope of recovery from abusing the restructuring process.

Should the courts accept a company’s restructuring plan, its creditors will be prevented from taking legal action against it, and the plan can begin implementation.

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Company Voluntary Arrangement

A restructuring plan can take several forms depending on the needs of the company in question. Some companies might only require small measures, such as the brokering of a new agreement with its creditors. In such an instance, an insolvency practitioner can be brought in to help facilitate negotiations with creditors under a Company Voluntary Arrangement (CVA), reaching an agreement that lessens the financial pressure on a company, while also ensuring creditors are repaid in full.

In more complex cases, a company may instead benefit from the sale of some of its assets, and possibly even the closing of unprofitable sectors of the company. An insolvency practitioner will be brought on board to help secure as high value sales as possible, allowing the company to procure funds quickly to get it back on track.

Similarly, seeking out additional investment is a third potential method for a company undergoing restructuring. Assuming the company in question has a viable business model, it may be viewed as an appealing prospect for external investment, especially from investors with ideas on how to properly realise the company’s potential.

Companies implementing a restructuring plan may use any of these methods, a combination of multiple, and possibly additional options we have not mentioned here.

Also Read: When Should a Company Use a Business Rescue Plan?

Eligibility criteria for a restructuring plan

Like any formal insolvency procedure, a company must meet certain eligibility criteria to qualify for a restructuring plan. However, unlike some other procedures, these eligibility criteria are few in number and easy enough to meet for any company that would make use of a restructuring plan.

Firstly, a company must have encountered financial difficulty, or expect to encounter difficulty in the near future, and must want to reverse course. Secondly, a company seeking to use a restructuring plan must use its proposed plan explicitly to improve the company’s situation. In other words, a company’s directors cannot take on investment funds as part of their restructuring plan, only to pay out increased dividends to directors and shareholders. Misusing funds raised through a restructuring plan, or taking advantage of such a plan for any reason other than improving a company’s financial situation can result in legal action against directors. Lastly, to make use of a restructuring plan in the UK, a company must either be based in the country, or have sufficient connections in order to be eligible.

Benefits of using a restructuring plan

Using a restructuring plan comes with a variety of benefits. Most notably, it allows a struggling company to reverse course and attain profitability. However, restructuring plans have a few other benefits. It can open the doors to additional investment capital, reduce the amount of pressure exercised by creditors, can be used to organise a company into a more sustainable model, and even be used to spot upcoming problems in advance, allowing them to be addressed before they have a chance to do damage. These benefits make restructuring a very versatile tool, one able to help both companies on the brink of financial ruin, and those that just need a little helping hand.

Let Clarke Bell help

Restructuring plans can be an invaluable tool for a struggling limited company. They can help restore a company to profitability, through a variety of means tailored to the needs of the company in question. However, restructuring plans need to be implemented in time, and by a practised hand, for them to be truly effective. Clarke Bell can help you with this task.

We have more than 29 years of experience in helping struggling companies find the path back to profitability. We can do the same for you. Our team of experts can help you find the best possible solutions to your company’s problems, or explore other insolvency procedures if appropriate.

Don’t hesitate to contact us today for a free, no-obligation consultation and find out exactly what we can do for you.