Business Restructuring & Reorganisation.

Where a business carries on different activities, it can be reorganised to separate them into distinct entities, or to combine activities currently carried on separately. Separating activities — sometimes called a demerger or hive-down — can be valuable for several reasons: to ring-fence the risk of one activity from another; to make a particular activity easier to sell, finance, or bring investment into without affecting the rest; to allow different activities to be owned or managed differently; or to prepare for a sale of part of the business. This is typically achieved by transferring a business and its associated assets, contracts, and employees into a separate company, and then arranging the ownership of that company appropriately. Combining activities works in the opposite direction, bringing separate operations together under one entity. These reorganisations involve transferring assets and businesses, which carries legal, tax, and employment consequences — including TUPE implications for employees and the need to deal with contracts, property, and consents. Careful planning and coordinated advice ensure the reorganisation achieves its purpose cleanly. The structure chosen depends on the commercial objective and the tax position.

When a company is in financial difficulty, directors face heightened responsibilities and risks, and how they conduct themselves is critical. As a company approaches insolvency, the directors' duties shift: they must have regard to the interests of the company's creditors, and as insolvency becomes more likely, the interests of creditors take on increasing — and potentially paramount — importance. Directors must be careful not to worsen the creditors' position. The key risks include personal liability for wrongful trading, if they continue trading and incur further debts when they knew or ought to have known there was no reasonable prospect of avoiding insolvency, and for other forms of misconduct. The most important protection is to take specialist advice early — as soon as the company's solvency is in doubt — and to act on it, keeping careful records of the decisions taken and the reasons for them. Continuing to trade in the hope that things will improve, without taking advice, is one of the most dangerous things a director can do. Directors restructuring a company in difficulty should take specialist legal and insolvency advice to understand and protect their position.

A company's share capital and ownership can be restructured in a number of ways, depending on the objective. Common methods include: issuing new shares to bring in investment or new shareholders; a share buyback, where the company purchases its own shares from a shareholder, allowing them to exit; creating new classes of shares with different rights, to restructure control or economic returns; a reduction of capital, reducing the company's share capital (which can be used to return value to shareholders or reorganise the balance sheet); a share-for-share exchange, often used to insert a new holding company above an existing company; and bonus or rights issues. Each method has specific legal requirements and procedures under the Companies Act 2006, and significant tax consequences that must be considered. Restructuring share capital or ownership is frequently driven by investment, succession planning, the exit of a shareholder, or preparation for a sale. Because the legal and tax consequences are significant and the procedures technical, these reorganisations should be planned and carried out with coordinated legal and tax advice.

A company voluntary arrangement (CVA) is a formal, legally binding agreement between a company and its creditors to deal with the company's debts — typically by paying them over an extended period, or paying an agreed proportion of them, while the company continues to trade. A CVA is a rescue procedure: its purpose is to allow a fundamentally viable company that is struggling with its debts to recover, by giving it breathing space and a structured way to deal with its liabilities, rather than going into liquidation. The proposal is put to the creditors, and if approved by the requisite majority, it binds all unsecured creditors — including those who voted against it. A CVA is supervised by a licensed insolvency practitioner. It can be a valuable tool for a viable business with a heavy debt burden, allowing it to continue trading and preserve value, jobs, and relationships, while creditors often recover more than they would in a liquidation. However, a CVA is not suitable for every situation, and it requires creditor support to succeed. Where a CVA may be appropriate, we can advise the company and its directors and work alongside the insolvency practitioner who will supervise it.

A group reorganisation involves restructuring the companies within a corporate group — the arrangement of parent and subsidiary companies under common ownership. Businesses carry out group reorganisations for many reasons: to simplify an overly complex group structure that has grown up over time; to separate different business activities into different companies, ring-fencing risk and making each easier to manage, sell, or finance; to combine activities; to insert a new holding company above the existing structure; to prepare part of the group for sale by separating it from the rest; to improve tax efficiency; or to facilitate succession or investment. A group reorganisation can involve transferring businesses or assets between group companies, creating or dissolving companies, and changing the ownership of shares within the group. These transactions must be carefully planned to achieve the commercial objective while managing the legal, tax, and employment consequences — for example, the transfer of a business between group companies can have employment law implications under TUPE. Group reorganisations are technical and benefit significantly from coordinated legal, tax, and accounting advice.

A members' voluntary liquidation (MVL) is a procedure for winding up a solvent company — one that can pay all its debts — in an orderly and tax-efficient way. It is appropriate where a solvent company has reached the end of its useful life and the owners wish to close it down and extract the remaining value: for example, when a business has been sold and the company is no longer needed, when the owners are retiring, or as the final step in a group reorganisation. In an MVL, a licensed insolvency practitioner is appointed as liquidator to realise the company's assets, settle any remaining liabilities, and distribute the surplus to the shareholders. The directors must make a statutory declaration of solvency, confirming the company can pay its debts. An MVL can offer tax advantages compared to other ways of extracting value, as distributions in a liquidation may be treated as capital rather than income — though the tax treatment depends on the circumstances and current rules. An MVL is distinct from an insolvent liquidation; it is a solvent, planned closure. Legal and tax advice, alongside the appointment of an insolvency practitioner, ensures it is carried out correctly.

A share buyback (or share repurchase) is a transaction in which a company buys back its own shares from a shareholder. Once bought back, the shares are usually cancelled, reducing the company's issued share capital. Share buybacks are commonly used: to allow a shareholder to exit the company where the other shareholders or an external buyer do not wish to purchase their shares; to return surplus cash to shareholders; to deal with the departure of a shareholder who is also leaving employment, often in conjunction with good leaver and bad leaver provisions; and as part of a wider reorganisation. A buyback must comply with the procedures and conditions in the Companies Act 2006 — including that it is permitted by the company's articles, that it is properly approved by the shareholders, and that it is funded from permitted sources (generally distributable profits, or in some cases capital, subject to additional requirements). There are also important tax consequences for the departing shareholder, which depend on how the transaction is structured. A share buyback can be a useful tool, but it must be carried out correctly to be valid, so legal and tax advice is essential.

Administration is a formal insolvency procedure designed to rescue a company, or to achieve a better result for creditors than an immediate liquidation would. When a company enters administration, a licensed insolvency practitioner is appointed as administrator and takes control of the company. Critically, administration triggers a statutory moratorium — a freeze that prevents creditors from taking or continuing legal action against the company without permission, giving the administrator breathing space to act. The administrator's statutory objectives, in order, are: to rescue the company as a going concern; if that is not possible, to achieve a better result for creditors than liquidation; or, failing that, to realise the company's assets to pay secured or preferential creditors. The administrator may, depending on the circumstances, restructure the business, sell it as a going concern, or wind it down in an orderly way. Administration can preserve a viable business and protect value and jobs, but it is a significant step with serious consequences. It involves a licensed insolvency practitioner as administrator, and we advise companies and directors on the process, the legal issues, and the options, working alongside the insolvency practitioner.

Business restructuring means making significant changes to the structure, ownership, finances, or operations of a business. It covers a wide spectrum, from positive, growth-driven changes to measures taken to rescue a business in difficulty. A business might restructure to: simplify or reorganise a group of companies; separate different parts of a business, or combine them; bring in new investment or change the ownership structure; prepare for a sale or for succession; improve tax efficiency; respond to growth or changing circumstances; or address financial difficulty and avoid insolvency. Restructuring can involve changes to share capital, the transfer of assets or businesses between entities, the creation or dissolution of companies, and changes to financing. Some restructuring is straightforward corporate reorganisation; some involves formal insolvency or rescue procedures. The right approach depends entirely on the objective and the company's circumstances. Because restructuring usually has significant legal, tax, and commercial consequences, coordinated advice is essential to achieve the intended result without unintended liabilities.

The distinction between solvent and insolvent restructuring is fundamental, because it determines both the available options and the legal considerations that apply. Solvent restructuring involves a financially healthy business making structural changes for commercial, tax, or strategic reasons — such as reorganising a group, changing the share structure, separating activities, or preparing for sale or succession. The directors' primary focus remains the interests of the company and its shareholders, and the restructuring is driven by opportunity rather than necessity. Insolvent restructuring (or restructuring in financial difficulty) involves a business that is insolvent or approaching insolvency, where the aim is to rescue the business, preserve value, or manage an orderly wind-down. Here the legal landscape changes significantly: the directors must have regard to the interests of creditors, formal insolvency or rescue procedures may be involved, and there are real risks of personal liability if directors get it wrong. The two require different expertise and carry very different risks, so identifying which situation a business is in — and taking the right advice — is the essential starting point.

A company in financial difficulty has a range of options, and the right one depends on the severity of the difficulty and whether the business is viable. Informal options include: negotiating with creditors for more time or revised terms; refinancing or raising new investment; and operational restructuring to reduce costs and return to profitability. Formal procedures, which provide a legal framework, include: a company voluntary arrangement (CVA), a binding agreement with creditors to pay debts over time or in part; administration, which provides protection from creditors while a rescue or better outcome is pursued; the restructuring plan, a court-based procedure for more complex restructurings; and, where the business cannot be saved, liquidation. The key to all of these is acting early — the sooner a struggling company takes advice, the more options are available and the better the prospects of rescue. Delay narrows the options and increases the risks, including personal risks for directors. Formal procedures involve licensed insolvency practitioners, and we work alongside them, advising the company and its directors on the legal issues and the best route forward. Early specialist advice is the single most important step.

Before restructuring, a business should consider a number of matters to ensure the restructuring achieves its objective without creating unintended problems. These include: being clear about the objective — what the restructuring is intended to achieve, whether growth, simplification, investment, succession, sale, or rescue; the legal consequences, including the procedures required and any consents needed from shareholders, lenders, landlords, or other parties; the tax consequences, which are often significant and can determine the best way to structure the changes; the employment consequences, including any TUPE implications where businesses or employees are transferred; the impact on contracts, property, financing, and third-party relationships; and, where the business is in difficulty, the directors' duties and the risks of acting too late or incorrectly. Restructuring almost always sits at the intersection of company law, tax, employment law, and commercial considerations, so coordinated advice is essential. Planning the restructuring carefully and taking advice before acting — rather than after — is what ensures it delivers the intended benefits cleanly. We can advise on the legal aspects and work alongside your accountants and other advisers to achieve the right outcome.