What is the Difference Between Restructuring in the UK and the USA from an Advisory Perspective?

Transatlantic lending is becoming a much more viable option for a lot of businesses at the moment. With that, it is worth considering how restructuring compares between the UK and US markets. There are many differences when it comes to managing finances in these two countries; if you plan on working in both markets, you should be sure you are staying up to date with them.

This means both commercially and in law because once you thoroughly understand these aspects, you will be in a much better position if you want to restructure your business. This article will discuss company restructuring in the UK and US.

Restructuring in the UK

In the UK, if a business finds itself under economic pressure and wants to know how it can effectively deal with said pressure whilst continuing to operate, it will usually put together a restructuring plan. This is an alternative to entering liquidation, which can often be costly and very final. This is a formal agreement between the organisation and its creditors, which can act as a plan to pay off liabilities and make the company solvent again.

These plans can come about in a number of ways, including:

  • Compromising on the amount of debt which is owed
  • Making a debt for equity swap
  • The resetting of covenants
  • Making reschedules for debt payments

What Are the Benefits of a Restructuring Plan in the UK?

When a business in the UK has a number of outstanding debts and liabilities, a restructuring plan can be a very effective way for an organisation to be able to balance its debts and get back on top of everything. They provide a much more sustainable platform for businesses that have existing debts.

When Will a Restructuring Plan Be Used?

There are a number of different occasions where a business will choose to use a restructuring plan in the UK. These include:

  • When the directors of a business want to restructure a balance sheet where the business is still valuable except for the debts and liabilities.
  • There is a debt or a group of contracts where the terms are onerous. Essentially, the rationale used is that the company would be solvent if not for this group of contracts. This usually applies to a group but can also apply to just one contract; in particular, it depends on the organisation and the way that they operate.
  • They are often implemented when a shareholder or director of a company wants to keep control over that company during a period of economic hardship. They will look for funding for their business but will only look for it on the basis that they can continue to have a say over what the business will do moving forward.
  • A restructure can also be done if there is a specific division of the company that is underperforming. As such, businesses can restructure so that they wind down that specific section in order to minimise the impact on the remaining organisations.

Restructuring In the USA

If a business in the USA is facing liquidation, then it may be the case that instead, they file for Chapter 11 bankruptcy. This is a form of bankruptcy that makes it so that a debtor has space and legal protection to restructure the way that their business works in order to pay back creditors over a certain period of time. It is often seen as a lifeline for businesses, and therefore, a lot of organisations in the US opt for it. If this is going to be successful, then the debtor has to make strategic, fundamental changes to the business.

Restructuring After Bankruptcy in the US

Once an organisation in the US has filed for chapter 11 bankruptcy, it will be offered a number of different incentives that should help them with its restructuring. It can be beneficial because these incentives might give a debtor power to do something that they were not able to do back during the regular running of their organisation. For instance, they might be given sufficient power to amend or pause any debts that they have ongoing.

Approval of a Restructuring Plan

Like in the UK, US companies will have to draw up a restructuring plan which will then need to be approved. There are a number of different guidelines that they need to meet, which may not apply within the UK. These include:

  • A debtor has to file their restricting plan within 120 days of filing for bankruptcy. The court can extend this period if necessary.
  • The plan needs to lay out how the business is going to be able to meet its financial responsibilities moving forward.
  • The court will need to have a trustee appointed that will keep watch over the proceedings to ensure that the plan keeps on track.
  • The debtor needs to file lots of documentation such as balance sheets, regular earnings and profitability records; these will all help the court when it comes to looking through the restricting plan and deciding whether or not to sign off on it.

Is Your Business Considering a Restructure?

If your business operates in both the US and the UK and is considering a restructure, then you must be aware of the main differences between the countries. The whole purpose behind them remains similar, but the name of the process and the steps contained within it vary. As such, you should speak to experts, such as Simple Liquidation, who can provide further information. They will be able to consider your business and its current liabilities and provide information on how you can effectively move forward. If you have any questions or require further information, do not hesitate to get in touch.