Corporate restructuring is often seen as a last resort for businesses under pressure, but in reality, it has become an increasingly common feature of the corporate landscape.
Whether prompted by financial distress, changing market conditions or the desire to streamline operations, restructuring brings with it a unique set of challenges that are legal, commercial and human in nature.
Handled well, restructuring can provide a lifeline, preserve jobs and enable long-term recovery.
Handled poorly, it can deepen financial problems, damage reputations and trigger disputes between stakeholders.
Understanding the challenges that arise in a restructuring process is therefore crucial for anyone involved, from lenders and investors to management and employees.
Conflicting stakeholder interests
One of the most difficult aspects of restructuring is balancing the interests of different stakeholders.
Creditors may want repayment as quickly as possible, while shareholders are often focused on preserving value. Add to this that management may push for breathing space to turn the business around and it can quickly become complex.
These competing priorities can create tension and delay progress. For example, creditors may resist proposals that involve writing down debt, even if such concessions would allow the business to survive in the long term and allow payment of some of the debt to the creditor.
Similarly, disagreements between secured and unsecured creditors over repayment hierarchy can create further complexity.
Finding a path that balances these conflicting demands requires not only careful financial planning but also skilled negotiation and, often, legal intervention.
Regulatory and legal complexity
Corporate restructuring does not happen in a vacuum. It sits within a web of insolvency law, company law, financial regulation and, increasingly, cross-border rules and other law specialisms, such as property and employment
This regulatory landscape is constantly evolving. For example, the Corporate Insolvency and Governance Act 2020 introduced new tools for companies in financial distress, such as the standalone moratorium and restructuring plan.
While these offer new options for businesses, they also introduce fresh complexities that need to be understood and managed.
For international businesses, cross-border restructurings raise additional questions about jurisdiction, recognition of proceedings in other countries and conflicting creditor claims.
The ticking clock
Restructuring is often carried out under severe time constraints. Businesses under financial strain need quick solutions to prevent further deterioration, but rushing negotiations can lead to mistakes or missed opportunities.
Time pressure also impacts stakeholders differently. For example, a lender may prefer a swift sale of assets to recover some of its investment, while management may want more time to explore refinancing or operational restructuring.
The result is a process where urgency and precision must be balanced carefully, moving too slowly risks insolvency, but moving too quickly can undermine the business’s long-term success.
Reputational risks
How a restructuring is handled can have a lasting impact on the reputation of a business. Suppliers may be reluctant to extend credit in the future, customers may lose confidence and employees may feel uncertain or disengaged.
A poorly managed restructuring can therefore leave scars that extend beyond the immediate financial issues. Conversely, transparent communication and fair treatment of stakeholders can preserve goodwill, making recovery easier once the restructuring is complete.
The human factor
Restructuring is not just about numbers on a balance sheet. It often involves redundancies, the closure of business units or the transfer of operations. These decisions carry significant human consequences, affecting livelihoods, morale and workplace culture.
Ignoring the human dimension can undermine the restructuring itself. Low morale and high staff turnover may weaken the business further, while poor handling of redundancies can lead to legal claims and reputational damage.
Successful restructurings, therefore, take account of the human impact and invest in communication, consultation and fair processes.
Strategic restructuring
While restructuring is often associated with financial distress, it is increasingly being used as a strategic tool. Companies may restructure to focus on core activities, divest underperforming units or adapt to technological changes in their industry.
In these cases, the challenges remain, stakeholder management, legal complexity and reputational considerations all still apply, but the motivation is proactive rather than reactive. Strategic restructurings can be just as complex, but they also offer opportunities for businesses to become more agile and competitive.
Make the best out of restructuring
Economic uncertainty, rising interest rates and global instability mean that restructuring is likely to remain a significant feature of the UK corporate landscape.
Distressed investors and specialist funds are already highly active and lenders are increasingly scrutinising borrowers’ ability to adapt to shifting market conditions.
For businesses, lenders and investors alike, the key takeaway is that corporate restructuring is never straightforward.
It requires not only financial solutions but also careful management of relationships, culture and reputation.
Success depends on anticipating challenges, acting quickly and building a structure that can support sustainable growth. If you need support with a restructuring speak to our specialist banking and finance team.