Restructuring

What it means

Restructuring is a court-approved procedure in which an insolvent company keeps trading and satisfies creditors under an approved plan, usually in part and in instalments.

The alternative is bankruptcy, which realises the assets and ends the business. Restructuring only makes sense where operations are viable and worth more than a break-up sale.

It differs from preventive restructuring in timing and strictness: the preventive procedure is meant for a company whose insolvency is only threatened, and aims at a deal with creditors before things get worse. Restructuring comes later, once the company is already insolvent; it is public, and the court and trustee intervene far more heavily.

How it works in practice

It starts with a trustee’s report confirming the conditions. Once permitted, claims are lodged, a plan is drawn up and creditor classes vote on it.

For a creditor it means watching the lodging deadline: a claim not lodged is extinguished in the proceedings. For the debtor it means producing complete, credible accounting records.

For the trustee’s report we prepare from the books a list of creditors with amounts and due dates, an ageing of receivables and a cash flow forecast for the plan period. The trustee and creditors decide on these figures whether the plan is achievable, so they must agree with the books to the last euro and be explainable item by item.

What to watch out for

A petition filed late can no longer be permitted and the case turns into bankruptcy. The director is personally liable for the delay in filing.

During the proceedings the company may not pay old debts preferentially to chosen creditors, not even a key supplier; such a payment can be challenged. Once the plan is confirmed, the risk is failing to meet it: the plan works as a binding payment schedule with all creditors at once, and a company that falls behind can end up in bankruptcy with no second chance.