Business restructuring involves various actions, but in challenging circumstances, it often refers to establishing a new company with the same directors and shareholders. The business continues to operate under the new entity, while the old company, burdened with debt, undergoes closure. This strategy is typically employed when the business remains viable, but the existing company faces financial difficulties.

Business restructuring becomes a viable option in scenarios where unforeseen events, such as Covid or Brexit, disrupt a previously successful business. If the company accumulates debt while trying to navigate these challenges, and servicing that debt becomes untenable, restructuring is considered. In such cases, it is often the company’s financial obligations, not the business itself, that necessitates the restructuring process.

Business restructuring can be accomplished through two main methods:

1. Pre Pack

• A sale agreement is reached between the proposed Administrator and Directors of the new company to acquire all business assets and goodwill
• The existing company enters insolvency, and immediately afterward, the new company commences trading, ensuring a seamless transition

2. Alternative Approach

• The company halts operations, and a new company acquires select assets through the liquidator appointed thereafter
• This approach is often seen in owner-managed businesses where there is a single director, and the primary asset is the Director / Business Owner

Choosing between these methods depends on the specific circumstances and goals of the restructuring process.

It’s crucial to follow the proper process in business restructuring, considering time constraints. Understanding your options early, especially if you plan to use the current (insolvent) company’s trading name, is essential. Incorrect actions may lead to breaches, such as Section 216 of the Insolvency Act, carrying significant personal implications. Reach out to our team today for advice tailored to your situation before proceeding with any restructuring plans.