Gannons Solicitors 020 7438 1060
London solicitors specialising in the law relating to employment, partnerships/LLPs and company commercial
The main aim for distressed businesses and companies is to reduce immediate financial pressure which will often be achieved by improving the liquidity of the business assets and reducing its liabilities.
Based on our experience in working with businesses and companies undergoing a restructuring, we have summarised the top four restructuring methods that can often be used when a business is in a troubled state but its creditors do not feel the situation is bad enough to require the appointment of an administrator or a liquidator.
1. Swap debt for equity
This involves a capital reorganisation of the company whereby a creditor (e.g. a bank) converts debts owed to it by the company into shares in the company. A debt for equity swap may also involve a cash raising exercise for the company for example by introducing new shareholders.
The ultimate objective of a debt for equity swap for the company will be to address directors' concerns about liability for wrongful trading and to make it more attractive for the provision of new capital by investors.
2. Standstill Agreements
A standstill agreement is the crucial aspect of most restructurings and involves a temporary arrangement entered into between the company and its creditors. It usually prevents the creditors from taking any enforcement action against the company for a specified period of time to allow a more formal restructuring agreement to be entered into and will fix the amounts of the debts owed to creditors at a particular date.
The standstill arrangement aims to provide financial stability for the company so that the creditors can agree a restructuring plan for the company without recourse to the courts.
3. Company Voluntary Arrangement
Also known as a CVA, this is where a company and its creditors enter into an agreement pursuant to which the company compromises its debts or agrees an arrangement for their discharge. The CVA will bind all creditors (excluding those with security over the assets of the company) when the necessary majority of creditors approve the CVA at a creditors' meeting.
4. Invoice discounting
Invoice discounting or factoring are ways to raise short-term finance. They involve a company selling debts due to it from customers at a discount to a finance company in return for immediate cash to provide working capital.