Restructuring - why, how and legal work involved

Corporate restructuring is an umbrella term which describes a wide range of ways of reorganising a business. Whichever type of restructuring you may be considering, it will need careful commercial, tax, operational and financial planning and execution to ensure a successful outcome while managing various stakeholder interests.

Key drivers for business restructures

• Financial Pressures leading to refinancing or debt restructuring - companies often undertake restructuring due to various financial challenges, most commonly cash flow challenges or debt burden.

• Improving financial performance and efficiency - implementing cost-cutting measures, divesting non-core assets, or reorganising operations to enhance profitability.

• Responding to market downturns or sector changes - adapting the business model or structure in response to industry disruption or economic challenges.

• Pre-emptive action to prevent insolvency - taking early steps to restructure before financial difficulties become critical, potentially avoiding formal insolvency procedures.

• Preparing for sale or merger - to make the business more attractive to potential buyers or merger partners.

• Focusing on core business activities - divesting non-core operations or subsidiaries to concentrate resources on primary revenue generators

Legal work with corporate restructure

Legal work and cost of a corporate restructure will depend on the underlying strategy and type of restructure. You should expect some of the following to apply :-

• Debt refinancing or rescheduling - involves reviewing and negotiating loan agreements, conducting due diligence on existing debts, ensuring compliance with financial covenants, and drafting or reviewing security documents (e.g., charges, guarantees), regulatory checks, obtaining necessary consents (e.g., lender approvals), and managing completion formalities such as registrations at Companies House and the Land Registry if security is involved.

• Equity restructuring - may include issuing new shares, converting debt to equity, share buybacks, or altering shareholder rights. Legal work includes drafting shareholder resolutions, updating company articles, negotiating investor agreements, ensuring compliance with the Companies Act 2006, and handling necessary filings at Companies House.

• Asset refinancing arrangements - drafting and negotiating loan and security agreements, conducting due diligence on asset ownership and encumbrances, ensuring compliance with lender requirements, obtaining necessary third-party consents and potentially registering security at Companies House or the Land Registry.

• Holding company formation - creating new holding structures for tax efficiency or risk management.

• Corporate and employment law issues - shareholder consents, managing any employee transfers under the Transfer of Undertakings regulations, implementing fair and legal redundancy processes where necessary and changes to employment terms and conditions legally.

• Legal documents - can include business transfer agreements, share purchase agreements, TUPE transfer agreements, settlement agreements for departing employees, intercompany loan agreements, lease assignments or variations, updates to property licenses, changes to or new loan security documents and updates to charges and securities.

If you need legal and/or strategic advice on options for restructuring or refinancing your business or group, please do get in contact for an initial chat.