Coronavirus COVID-19 and Business Restructuring
Written by John A Waller, Director. Reviewed February 23rd, 2022.
Coronavirus COVID-19 and business restructuring during the current pandemic include restructuring of a company’s assets and liabilities. The procedure consists of suspending or terminating a business, closing shops or factories, and making general cuts to team members for performance, cost or location. However, the procedure involves a charge against earnings for that trading period. Compare debt restructuring.
Considering the restructuring of a company, the company may want to achieve more efficiency and adapt to ever-changing markets, new markets and times with the Coronavirus COVID-19 pandemic.
Significant corporate restructuring activities, however, include:
- Tender offers,
- Leveraged buyouts,
- Equity carve-outs,
- Liquidations and
Companies restructuring ready to sell, merge, change the company’s direction, or be integrated into the existing group. Therefore, it can restructure after the failure of a new product, consume cash and build debt, and accordingly reduce operating costs.
However, subject to the approval of shareholders and possibly creditors, the Board of Directors can decide to sell company assets, raise money, reduce debt, and consider a pre-pack administration.
So when a company is restructured internally, operations, processes, departments, or ownership can change, making it more integrated and profitable.
Advisors usually join in the short term to implement restructuring plans. However, the divisions can be sold to other investors, and a new management team is set up from the top.
Results include alterations in new efficient procedures. The company invests in updated computer systems and the latest software, faster, more extensive networks, possible relocation, or closure of company sites.
During the restructuring, legal teams remain close to then assist with issues.
Restructuring, however, enters an unsettled period for the company, often an awkward time as the company’s dynamics change. Change may result in loss of workforce, though upon completion, the company will operate far better. Once employees adapt, the restructured company should perform better through less debt, further improving performance, especially efficiency in production methods.
HMRC Support During the present pandemic.
Within the United Kingdom, HMRC offers support to help companies through this unprecedented time.
However, if your limited company is struggling during the pandemic, please read my business can’t survive the pandemic..
Please read further on our web page ‘HMRC support for contractors during pandemic
Many aspects form the restructuring of a business. The most common types of restructuring are rationalising and simplifying a business operation by flagging up non-performing departments that can either face closure or a reduction in size and cost, while redirecting the saved resource and money, therefore, into profitable sectors of the business. A slimmer, more refined organisational structure enables increased efficiency and potentially significant reductions in operating costs.
Once restructured, a company should have increased strength, setting it up well for the future. Analysing possible risks, which may differ from those identified when the directors first launched the business, ensures it fits a purpose while improving stability and preserving stakeholder value.
UK’s businesses need to adapt to the new regime, which could require social distancing measures and increased hygiene and health protocols. In addition to changing consumer behaviour or feelings, some companies will find the first months of trading, especially testing. Consequently, companies may not react immediately, but operating costs will increase.
Those companies using the government’s subsidised furlough scheme to cover wages, however,will be hit with the whole wage bill for their employees again. However, cash flow has taken a hit due to months of no trade, which could be financially straining.
Companies should consider the potential to apply for an emergency loan taken out during this time, along with tax or rent previously deferred, and increases outgoings, thereby affecting cash flow.
Streamlining and cutting operational costs
The restructuring of a company involves looking and possibly changing many dynamics. The first option to consider is cost, particularly the removal of complicated structures. Traditionally restructuring involves reviewing areas of the business not performing with potential closure or reduction.
A slimmed-down, refined organisational structure aids efficiency and operational costs.
Once restructured, it should be more robust, enabling its viability in the foreseeable future. So taking into account potential threats, which may differ to risks highlighted when the directors first launched the business, ensures it is fit for purpose, improving stability and preserving value for shareholders.
For further updated information on how the UK government protects against winding up petitions? Please view winding up petitions and coronavirus.
Applying to a restructuring process can ensure your company is prepared to move forward when we arise from the Coronavirus COVID-19 pandemic. The team at HBG Advisory can talk you through the restructuring procedure and support you through the process.
To schedule an initial free meeting in confidence with a member of our restructuring team, please call 0330 056 3120.
For further detailed help, please view ‘Business restructuring turnaround of your company‘.
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