Demergers and Restructuring Business Demergers and Restructuring Solicitors

Common Reasons for Restructuring

When company owners realise that their existing business structures will not allow them to achieve their goals, then it is time to change.

This realisation can arise in a variety of circumstances, and the most common, in our experience, are the following:

• The company structure will not optimise the legitimate tax benefits available on sale.
• Their group of companies has become less manageable after a period of expansion.
• Parts of the business need to be ring-fenced or removed.
• Property and trade need to be separated for strategic and long-term planning reasons.
• One or more owners wish to retire and extract value without an outright sale.

Corporate restructuring not only addresses these specific scenarios, but also offers several overarching benefits that can transform a company's operations and strategic focus.

Adaptability

The ability to quickly adapt to market changes is crucial. Restructuring provides the flexibility to realign operations and structures, enabling companies to respond promptly to shifts in market dynamics, customer preferences, or technological advancements. This adaptability allows organisations to seize new opportunities and tackle challenges with agility.

Focus on Core Strengths

Over time, businesses might accumulate divisions or services that stray from their core competencies. Restructuring helps in selling off non-core assets, allowing companies to hone in on their strengths. By focusing on what they do best, organisations can allocate resources more efficiently and excel in their strongest areas.

Financial Stability

For companies facing high debt or financial instability, restructuring can be a vital strategy. Financial restructuring, such as renegotiating debt terms or optimising capital structures, can lead to improved liquidity and reduced financial risks. This process lays a stable financial foundation, strengthening the company’s ability to weather economic fluctuations.

• Aligning these benefits with the company’s overarching goals and securing stakeholder support is crucial for successful restructuring. By leveraging these strategic advantages, companies can navigate change effectively and position themselves for sustainable growth. Even successful companies may embark on restructuring to capitalise on new growth prospects, thus, reducing dependency on a single source of income, to enhance efficiency, or gain a competitive edge.

Restructuring Strategies

When discussing corporate restructuring, it's crucial to understand the various strategies companies can employ to enhance their efficiency and financial health. Here are some of the primary types of restructuring:

Organisational Restructuring

Organisational restructuring involves significant changes to a company's internal framework. This includes altering the hierarchy, departments, roles, and responsibilities to better align with strategic goals and external conditions. Companies might undertake such restructuring to adapt to market dynamics, technological advancements, or financial challenges. Key activities in this category can include downsizing, merging departments, or redefining workflows.

Asset Restructuring

Asset restructuring focuses on adjusting a company's asset portfolio to improve financial health and operational efficiency. This may involve buying or selling assets, reallocating resources, or changing the asset composition to align with business goals and market conditions. The aim is to enhance company value by strategically managing assets, whether through optimizing resources or adapting to industry trends.

Financial Restructuring

Financial restructuring targets reorganisation of a company’s financial structure to boost stability and liquidity. This process can involve:

• Debt restructuring: Renegotiating debt terms, such as extending maturity dates or converting debt to equity.
• Equity issuance: Raising capital by issuing new shares, thereby, improving liquidity.
• Asset sales: Selling non-core assets to generate cash.
• Refinancing: Securing new financing arrangements with favorable terms.
• Capital injection: Bringing in fresh capital from new or existing investors.
• Dividend suspension: Temporarily halting dividends to conserve cash.

The goal here is to restore financial health and investor confidence, laying a foundation for growth.

Legal Solutions

The result in the various strategies can result in the following legal solutions:

• Share rights issues
• Share buybacks
• Creation of new share classes
• Joint ventures
• Capital reductions

Each of these solutions can be tailored to address specific financial challenges or strategic goals, further diversifying a company’s approach to restructuring. By understanding and implementing these various types, businesses can effectively navigate periods of change and position themselves for future success.