During the last couple of years, many companies have had to endure severe and unforeseen reductions in their productive capacity, increases in COVID-related costs, supply-chain disruptions, and a general decrease in the demand for revenue-generating goods and services. As a result, cash reserves have slowly withered away, and many companies are now approaching financial distress.
While aggressively cutting costs, stopping key operations, or in more extreme scenarios filing for voluntary winding-up are all options that distressed companies must keep in mind, directors should not resort to such value-destroying action without first exploring all their options at hand.
One often overlooked solution may be Corporate Restructuring.
The implementation of a timely and tailor-made restructuring plan may help you safeguard your current operations and can concurrently result in a prearranged financial recovery. That is, if done right, corporate restructuring may improve your business’ long-term financial and operational performance, reduce or even eliminate profit-draining activities, and help in obtaining the most efficient forms financing; all without downsizing or losing key clientele.
In truth, a company does not need to be in financial distress, or in the vicinity thereof, to benefit from corporate restructuring. Indeed, restructuring may also encompass a company’s intention to increase profitability by diversifying its offered goods and services, expanding its operational reach, increasing its competitive advantage, achieving economies of scale, or to take the company in a completely different direction altogether.
Types of Corporate Restructuring
Out-of-court restructuring includes:
- Financial Restructuring – Here, a company may wish to reorganise its share capital and its distribution, add new debt to lower its overall cost of capital, refinance its current debt and trade credit, alter is debt-servicing schedule, and divest from its loss-making assets and/or products.
- Organisational Restructuring – On the other hand, companies may wish to merge, acquire competitors, relocate to more beneficial jurisdictions, invest in efficiency-improving products, liquidate unprofitable subsidiaries, reshuffle management, or downsize the number of employees on their wage bill.
Alternatively, and under specific conditions as outlined under Part VI of the Malta Companies Act, companies may apply to the court to reach a formal compromise or arrangement with their creditors. Furthermore, formal reconstruction or the amalgamation of a company or a group of companies is also an option therein.
However, to benefit from the abovementioned Company Recovery Procedure, companies must both appoint a special controller to administer the affairs of the company and provide the court with an adequate and achievable 12-month recovery plan. Acceptance of the recovery plan is of course under the full discretion of the court.
Any form of corporate restructuring, whether in or out of court, requires professional advice.
Borg Galea & Associates offers advice and assistance with respect to the effects, advantages, and any potential disadvantages of corporate restructuring. Furthermore, we can also help you understand the causes of your past shortfalls and assess your business’ short-term and long-term viability. We also and prepare crucial decision-making financial projections and provide guidance on drafting the most appropriate recovery plan that is tailor made to your current financial position.
For more details contact us on firstname.lastname@example.org or +356 27037012.
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