Corporate Debt Restructuring: The Ultimate Legal Guide
When a business is under financial pressure, corporate debt restructuring can offer a lifeline. Helping companies survive, regain control of their finances, and protect stakeholder interests, it’s a practical way forward that avoids the harsh consequences of insolvency.
In this guide, we take you through the key aspects of corporate debt restructuring, from the options available and practical steps involved, to the risks, benefits, and legal responsibilities.
What is corporate debt restructuring?
Corporate debt restructuring involves renegotiating and reorganising a company’s outstanding financial obligations to restore viability and avoid insolvency. In plain terms, it’s about helping a business improve cash flow, stay operational, and get back on the path to profitability.
But restructuring isn’t just for the company’s benefit. Creditors also stand to gain. By working collaboratively with the business, they often recover more than they would through a formal insolvency process. And avoid the delays and costs associated with enforcement or commercial litigation.
Business debt restructuring options
Companies in financial difficulty have multiple restructuring options and choosing the right approach is critical to both short-term survival and long-term viability. In many cases, a combination of strategies is needed to deliver a comprehensive restructuring solution.
Key corporate restructuring options include:
Informal negotiations
Often the first step when financial pressures mount, rather than entering into a formal insolvency process, a company can approach creditors directly to try and agree more manageable repayment terms.
This might involve reduced monthly payments, a temporary pause on repayments, or an extension to the loan period. Success depends heavily on maintaining open, honest relationships and building mutual trust around a clear, realistic plan for repayment.
Company Voluntary Arrangement (CVA)
A CVA is a formal insolvency procedure that allows a company to reach a binding agreement with creditors regarding debt repayment. It usually involves partial repayment of debts over a specific period, typically 3-5 years.
CVAs require approval from at least 75% of creditors by value. CVAs can significantly alleviate financial pressures, enabling the business to stabilise and recover.Debt-for-equity swaps
A debt-for-equity swap helps a company reduce its debt burden by offering creditors an ownership stake in the business. Instead of chasing repayment, creditors agree to convert a portion of what they’re owed into shares.
This not only lightens the company’s repayment obligations and interest costs, but also gives lenders a seat at the table and a long-term interest in the company’s success.Refinancing and consolidation
Refinancing gives a company the chance to replace its existing loans with new ones on better terms. While consolidation is about simplifying the financial picture by combining several debts into one manageable loan.
Both approaches can offer some much needed breathing room, easing financial pressure and improving monthly cash flow.Administration and pre-pack administration
A standard administration places a company under the management of an insolvency practitioner who takes control to restructure the business.
On the other hand, a pre-pack administration involves pre-negotiating the sale of the company before entering administration. Both processes can quickly stabilise a struggling business and enhance its prospects for long-term recovery.Capital raise
Raising new capital directly injects liquidity into the business, allowing immediate debt repayment, financial stabilisation, or support for restructuring activities.
Successful capital raising can significantly improve market confidence, though it may also dilute existing shareholders’ interests or increase future financial obligations.Asset disposals
Asset disposals can play a core part of a corporate debt restructuring strategy, particularly as a means of raising funds to repay creditors or meet restructuring milestones.
Real-world examples of corporate debt restructuring
- Kier Group plc: In 2019, there were genuine concerns that the prominent UK construction and infrastructure services company might go bust. In response, Keir Group undertook a comprehensive restructuring strategy, including a successful capital raise, asset sales, and operational efficiencies. Kier significantly reduced debt and was back in profit by 2021, reflecting its successful turnaround.
- Azul Airlines: In October 2024, Brazilian airline Azul successfully eliminated $550 million in obligations through consensual agreements with lessors and equipment manufacturers. This restructuring involved exchanging the debt for up to 100 million new preferred shares, effectively reducing the company’s obligations without formal bankruptcy. The agreement was well-received by the market, with Azul’s shares surging over 20% following the announcement.
- PizzaExpress Group: PizzaExpress completed a £735 million balance sheet restructuring in November 2020. This included the implementation of a CVA related to its UK leasehold liabilities. Following the debt restructuring, in January 2025, the fast food chain was bought in a pre-pack deal, preserving more than 3,000 jobs and 139 restaurants.
Benefits of corporate debt restructuring
- Improved cash flow: Reducing immediate financial obligations through renegotiated terms and conditions, including lower interest rates, extended repayment timelines, and partial debt forgiveness.
- Avoiding insolvency proceedings: Preventing the reputational and operational impacts of bankruptcy or administration.
- Strengthened creditor relationships: Open and transparent negotiations typically foster trust and cooperation, facilitating smoother future interactions and improved credit terms.
- Operational stabilisation: Allowing continued business operations without severe disruption, preserving employment, supply chains, and critical business relationships.
- Enhanced long-term viability: Repositioning the business strategically to address underlying financial weaknesses and emerge stronger, often leading to improved profitability and competitive advantage.
Disadvantages of corporate debt restructuring
- Damage to credit ratings: Restructuring often negatively impacts a company’s credit score, potentially limiting future borrowing options and increasing borrowing costs.
- Dilution of ownership: Debt-for-equity swaps can significantly dilute existing shareholders’ equity stakes, leading to reduced control and potentially affecting long-term strategic decisions.
- Increased scrutiny and oversight: Creditors and regulators may require greater transparency, increased reporting obligations, and closer monitoring, potentially limiting managerial autonomy.
- Operational disruption and uncertainty: The restructuring process can create uncertainty among employees, customers, and suppliers, temporarily affecting morale, productivity, and business continuity.
- Potential reputational harm: Even informal restructuring can signal financial distress to the market, affecting customer confidence, supplier trust, and future business opportunities.
Director responsibilities during corporate debt restructuring
- Avoidance of wrongful trading: Carefully assessing the company’s financial status and avoiding activities that worsen creditor positions or could be considered irresponsible.
- Transparent communication: Ensuring open, honest, and regular communication with creditors, shareholders, insolvency professionals, and other stakeholders.
- Comprehensive documentation: Keeping detailed records of all decision-making processes to demonstrate diligence and compliance with legal obligations.
The role of creditors during corporate debt restructuring
Creditors are central to the success of any corporate debt restructuring. Their involvement typically spans the entire lifecycle of the process, from initial assessment through to post-agreement monitoring.
Creditors involved in corporate debt restructuring may include:
- Banks or financial institutions that have provided loans, credit facilities, or other forms of structured finance
- Trade creditors (suppliers who are owned money)
- Landlords (who are owed rent)
- HMRC
- Employees (who are owed wages or redundancy payments)
Creditor cooperation is essential, especially in complex or multi-party restructurings. Larger lenders may be heavily involved in the structure and content of the final agreement, often insisting on covenants, reporting obligations, and security enhancements.
Corporate debt restructuring process
The corporate debt restructuring process is not just about rewriting financial obligations. It’s about establishing new norms, safeguards, and expectations to improve financial discipline, rebuild trust, and support sustainable recovery.
While each situation is different, the key steps include:
Assessment and planning
This initial phase focuses on understanding the company’s current financial health. A detailed analysis of cash flow, liabilities, assets, and operational performance is carried out. Directors should engage financial and legal advisers early to assess options and formulate a realistic restructuring strategy.
Stakeholder engagement and standstill arrangements
Engaging key stakeholders early – especially creditors – is vital. In multi-creditor scenarios, forming a creditor committee can help coordinate negotiations and ensure diverse interests are adequately represented.
During this stage, companies may seek a standstill agreement, which provides temporary relief by suspending enforcement actions while the restructuring plan is negotiated. This gives the business breathing space to develop viable solutions.
Negotiation and restructuring framework
The company works with its advisers to propose terms to creditors. The aim is to ensure the company can service its debts under revised conditions without undermining creditor returns.
Negotiations may lead to a restructuring agreement – a legally binding document that sets out the revised obligations. Intercreditor agreements may be necessary in complex arrangements.
Documentation and legal compliance
Once negotiations conclude, the terms are formalised in detailed legal agreements. These must be compliant with UK corporate and insolvency law. This step may also require filings at Companies House or creditor approvals, depending on the nature of the agreement.
Implementation and monitoring
Following execution, the focus shifts to delivering on the restructuring commitments. This may involve:
- Selling assets to meet restructuring milestones
- Meeting ongoing financial reporting obligations
- Adhering to financial covenants, such as liquidity or leverage ratios
- Maintaining regular communication with creditors
Monitoring helps ensure early identification of any emerging issues, allowing timely intervention to keep the recovery on track.
What is included in a debt restructuring agreement?
A debt restructuring agreement outlines the terms and commitments between a company and its creditors. While creditors may agree to concessions such as extended payment deadlines, typically, the struggling business is also required to make firm commitments toward accountability and recovery.
While the specifics will vary depending on the business, its industry, and the creditors involved, debt restructuring agreements may provisions such as:
- Revised repayment terms: Adjustments to loan terms, such as reduced interest rates, extended payment schedules, or short-term payment holidays.
- Standstill provisions: A contractual pause on creditor enforcement actions, giving the company time to stabilise without the threat of legal action. Standstills are typically short-term (30-90 days) and often accompanied by a non-disclosure agreement (NDA).
- Security arrangements: New or enhanced security over company assets, such as charges over property, stock, or receivables, or personal guarantees from directors.
- Financial covenants: Performance-based commitments by the company, such as maintaining a minimum EBITDA threshold or keeping leverage and liquidity ratios within agreed limits.
- Reporting obligations: Regular submission of management accounts, cash flow forecasts, or third-party financial reviews.
- Event of default clauses: Clearly defined triggers that give creditors the right to take action if the company breaches the agreement. For example, missing a covenant or failing to deliver required financial reports.
- Restructuring milestones: Targets the company agrees to meet within defined timeframes, such as divesting non-core assets, raising capital, or reaching break-even.
Why choose our corporate debt restructuring lawyers?
- Extensive experience managing complex restructuring negotiations.
- Bespoke solutions that meet each client’s unique circumstances and objectives.
- Comprehensive support to directors ensuring compliance with UK regulatory obligations and protecting against personal liability.
Corporate debt restructuring - FAQ’s
The duration varies significantly, typically ranging from a few months for informal negotiations to 6-18 months for formal procedures like CVAs or administration.
Yes, successful restructuring often prevents insolvency by stabilising finances and restoring operational viability.
It may temporarily impact your credit rating, but successfully completed restructuring can improve long-term creditworthiness by demonstrating responsible debt management.
Debt restructuring focuses on helping the business remain operational by modifying debt terms, whereas insolvency procedures like liquidation or administration may involve winding up the business. Restructuring is generally less disruptive and more cost-effective.
Key tax considerations include:
- Any debt forgiveness or restructuring can have significant tax consequences, as it may trigger taxable profits for the debtor company.
- Debt releases between connected companies may be exempt from certain tax charges, but specific criteria must be met to qualify.
- Converting debt to equity might affect a company’s tax position, influencing loss reliefs and potentially impacting taxable profits.
- In certain circumstances, a corporate rescue exemption applies, allowing companies facing genuine financial difficulties to restructure debts without triggering adverse tax consequences.
Costs include legal and advisory fees, negotiation expenses, and potential creditor charges. However, these are usually offset by long-term financial stability achieved through restructuring.
Contact our corporate restructuring lawyers today
Facing debt challenges can be daunting, but timely action makes all the difference. Here at Summit Law, our expert corporate debt restructuring lawyers are here to guide you through every step, ensuring your business achieves a stable and secure financial future.
For your free consultation, please call us on 020 7467 3980 or complete our online enquiry form to discuss how we can help.