Restructuring doesn’t have to be a messy ordeal

No entrepreneur relishes restructuring their business. It can be complex and time consuming, but that doesn’t stop it from being worthwhile.

Restructuring can be prompted by a number of different things – some are the consequence of success, the result of disagreements, or simply commercial imperatives. They might arise, for example, because of a founder leaving, shareholder disputes, a disposal of part of the business, or even inheritance tax planning.

Restructuring may well be unavoidable. Over the years, a company or group might have grown into a hotchpotch of different businesses, products or services, resulting in a need for realignment.

Sometimes restructuring is borne out of conflict. Disputes among shareholders can result in a group’s assets having to be divided up, rather than continuing to be held jointly. When dealing with this sort of restructuring, it’s particularly important for all parties to have a common goal – although this doesn’t stop people from making additional claims before the deal is signed. Shareholders can look to reduce the risk of disagreements in the event of a dispute by having a shareholders agreement in place from an early stage.

Shareholders often start a business with a common ethos and view, but circumstances and people change. Having an agreement in place which sets out what should happen upon a divergence of views can save a business from being destroyed as a consequence of a falling out between owners, resulting in a stalemate.

Restructuring can cut right through the business, raising many questions, which can take up an awful lot of management time to ensure that everything ends up where it should. It’s important that this commitment is understood at the outset, and all parties agree that the restructuring will result in the desired outcome. Otherwise, the wheels can quickly come off.

For example, if a group wanted part of its business to spin off into a standalone entity, it’s important to ascertain what the entity needs to operate on its own. If it is dependent on services from individuals that are employed elsewhere in the group, certain agreements or licences may need to be put in place to ensure it has what it needs to continue to run and be an attractive prospect for a potential buyer.

Restructuring can also be an opportunity for a spring clean. Contracts can be redrawn, arrangements can be formalised and staff incentivised. When businesses are at an early stage and growing organically, some attributes that are often found in more mature businesses can be understandably parked or overlooked.

A reorganisation can provide a useful opportunity to consider and address the business’s current needs. Ultimately, bad advice can result in bad restructuring. If you don’t get the right advice, you could find that there are unforeseen and unintended consequences. A good law firm will take the time to understand the primary goals behind restructuring and ensure that it’s done in the most advantageous manner.

View the full supplement that featured in today’s City A.M. here.

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