The restructuring process
“If directors might become personally liable for the debts of a company,
Sometimes, the imperatives for action are so great that the situation requires more than just a strategy to improve business performance.
When a business is not performing as well as it should, it can sometimes be difficult to figure out how severe the problems really are. Problems can be masked by many factors, including:
When the performance of a company’s business is deteriorating, the type of restructuring required for the company will be determined by the severity of the rate of decline, the current financial position of the company and the prospects for the future of the business – as well as the interests and objectives of the various stakeholders.
There are two broad categories of restructuring:
An informal restructuring is conducted by the directors of the company and there is no legal change in control of the company.
With a formal restructuring, the control of the company and/or business is taken away from the directors and is vested in the hands of an independent or external administrator.
Sometimes, a business will move from an informal restructuring to a formal restructuring as more information comes to hand and as the various options are explored. Examples:
With a formal restructuring, there are a number of different types of stakeholders who can commence the process of restructuring (eg shareholders, directors, creditors, financiers). They each have different rights and the type of restructuring they can implement is governed by either the Corporations Act plus, in the case of a creditor who holds security (a charge), the terms of their charge document.
When a company is solvent (i.e. it can pay all its debts as and when they fall due), shareholders may also wish to restructure the business. The reasons may vary but in general, the shareholders will have made a decision that the existing business structure and assets no longer have a purpose in being retained.