What is corporate restructuring and turnaround?

Nicola Kirk, partner, explains the processes that are designed to help a business in distress.

When a company experiences financial difficulties, it may consider entering into a process with its creditors known as corporate restructuring or turnaround, in an attempt to save the company and/or its business.

The process broadly involves a reorganisation of the company’s debts, and may also involve the company selling off certain non-essential assets, in order to keep the company going.

What are the key features of restructuring or turnaround?

Support of the key creditors

An effective restructuring process will require the support of at least the majority of the key creditors of the company. Without such support, any dissenting creditors will be able to make demands for payment or initiate formal insolvency proceedings, thereby effectively invalidating any agreement reached with the other creditors.

A stay on enforcement and claims

For the restructuring to be successful, the agreement between the company and the creditors will need to make provision preventing the creditors from (i) making any demand for payments; (ii) enforcing their security; or (iii) initiating any formal insolvency procedures. Without such provision, any attempt at restructuring may prove futile, as any dissatisfied or disgruntled creditors will be able to bring claims against the company, thereby undermining the terms of any agreement.

When will the restructuring process be appropriate?

To increase the likelihood of success of the restructuring process, it is imperative to identify as early as possible when a company is experiencing financial difficulties. Common indicators of a company in financial difficulty include:

  • a decrease in the gross profit
  • a decline in reputation and market perception
  • a change in the performance of contractual obligations

Restructuring will invariably be the best option for both the company and the creditors, as it will not only provide the company with the opportunity to continue trading or operating, but will also provide the creditors with the best possible opportunity of being repaid.

Formal insolvency proceedings may not be the best option for the creditors, as they may not be able to recover all, or often any, of their credit, depending on where they rank in the order of priority of creditors.

However, restructuring will only be suitable for companies with a viable underlying business, as there must be at least some prospect of the company or its business succeeding. In the absence of such a quality, the only realistic option available would be to initiate formal insolvency proceedings after taking the requisite advice.

Types of restructuring

Restructuring will usually involve the company entering into a contract with the creditors stipulating how the company and its business is to be operated, and when and how much the creditors can expect to be repaid. Restructuring may also be combined with certain statutory procedures, such as administration or a company voluntary arrangement (CVA), in order to reap the benefits of certain features of such formal processes.

Standalone restructuring agreement

The company and its creditors may be able to negotiate a contract regulating their dealings with each other in order to solve the company’s issues. As it is an informal procedure, it will require the consent of all of the creditors who are to be bound by the agreement. There will be no statutory stay imposed on actions and claims by the creditors. The agreement will therefore need to make provision for a period within which the creditors will be unable to make any demands for repayment, enforce security, or initiate any formal insolvency proceedings.

The agreement will regulate the terms on which the creditors are to be repaid, and will need to discuss issues such as any deferment or reduction of payment amounts, any interest payable, and whether any new security will be granted to the creditors.


This is a much more formal procedure, whereby an external administrator is brought in to manage the company in place of the directors. An administrator can either be appointed by a court order made at a formal hearing, or by certain parties, including the directors lodging a series of prescribed documents at court (the ‘out of court route’). The administrator is given all of the management powers of the directors and must use those powers in the interests of the company’s creditors as a whole. One of the main advantages of administration is that a statutory moratorium is imposed on the enforcement of remedies by creditors, and may therefore be combined with a standalone restructuring process where a stay on claims and enforcement cannot be negotiated.


This is an arrangement whereby the company enters into a compromise with at least some of the creditors in relation to the repayment of their debts to those creditors. The arrangement requires the approval of (i) 75% in value of the creditors present and voting at the meeting of the creditors called to consider the CVA proposal, and (ii) 50% in value of the creditors that are unconnected with the company, ie are not directors or associates of the company.

Once it has been approved, the CVA becomes binding on all creditors, apart from secured or preferential creditors, unless they have consented to be bound by it. Although the agreement does not automatically benefit from a statutory moratorium, certain companies may be eligible for a short-term stay.

About the author

Nicola Kirk is partner at Pitmans LLP and specialises in insolvency and restructuring.