So you are thinking that your company will have to undergo insolvency. But, have you thought of restructuring your business? Rather than going insolvent, you may need to consider alternative ways of preserving your assets for the creditors and shareholders. Restructuring your business can essentially take many forms and so the more imaginative you are (within the law) the better.
The idea of restructuring is to save your company or at least the part of the business that is worth saving. Usually, the process of restructuring takes a while so the Directors need to be astute as to what is coming and be aware of their liabilities and debts owing to creditors. This enables you to accurately decide which way is the most effective means of saving your company, whether it be by raising capital or delaying expenditure debts.
There are four recognised restructuring tools that you could use individually or in combination. To determine which tool to use, you firstly need to have a very clear understanding of your company’s financial and trading position. This includes information on what the company has and owes to creditors, the value of assets and whether they are saleable and whether those assets are essential to the continuance of your business. Additionally, you will need to know what the financial drivers are. In other words, what aspects of your business are brining in the money and what are not. In terms of your trading position, you will have to find out whether you are essentially making money and how much, as well as orders you may be receiving and needing to fulfil. All this information will go into a document called a “Going Concern Statement” which is a full analysis of everything that is going on in your company.
It is also very important to bear in mind that as a director, you have a duty not to trade in insolvent circumstances and breaches carry very strict and serious consequences. Before you decide what to do next, you will need to make sure you are not breaching any of your directors duties so it is strongly advised that you obtain legal advise from a Corporations Law specialist.
Once we have obtained all this information, we can now proceed to deciding which restructuring tool is the most suitable for your business.
Debt Refinancing Or Restructuring
Debt Refinancing: may involve simple restructuring of payments to a later date or having a stand still period (E.g. getting the bank to agree not to pay interest for 12 months until you will resume making your payments). In the event that you have a lot of creditors, you will have to negotiate with each of them individually to deal with your debts.
Debt Restructuring: is where you will seek to structure the repayment not by money but by a share in the business. For example, you might be able to persuade a creditor who you owe $10 million, to take 10% of your business instead of the money. This is otherwise known as Equity.
The overall aim of equity restructuring is to raise capital or basically, to raise money. This may involve raising new funds by issuing more shares by inviting the public to purchase shares in the company. Or you may want to consider swapping debt for equity or have a Rights Issue where everyone who owns shares in your company has the right to buy more shares.
Statutory procedures are basically about using the law as part of your company scheme and can be done by changing the rights that attach to shares. In other words, they can become preference shares or involve more voting rights. The aim is to give your creditors confidence. This type of tool is very complicated and would require the aid of legal expertise. If you would like to speak with one of our specialist lawyers at LegalVision, we would gladly be of assistance.
Finally, asset disposals means that you sell your assets. For example, you may decide to close down a whole division of the company, sell property or equipment that your company could do without.
No matter which tool you think is most suitable to your business, it is vitally important to have legal advise throughout the entire process – from obtaining financial information to deploying a restructuring tactic.
If you would like to discuss your situation with one of our specialist lawyers, please complete the form or give us a call. We will then assess your needs free of charge and provide a fixed-fee quote if relevant. Just give us a call on 1300 544 755.