RESTRUCTURING, RESCUING TROUBLED COMPANIES AND TAKEOVERS
These activities frequently involve making changes to the company’s shareholdings, to its debt or both. In this chapter we refer to such changes as ‘restructuring’ the company or corporate group.
The laws and statutory procedures relating to company restructuring have grown up piecemeal over time with the consequence that the law does not map neatly on to practical situations. Company restructuring statutory procedures can usually be used in a number of very different practical situations; for example, the scheme of arrangement procedure in Part 26 of the Companies Act 2006 can be used to effect such diverse activities as a takeover, a tax-effective return of capital to shareholders and a compromise with creditors in an effort to stave off insolvency. Also, a number of legal options may be available to a company in a given situation which must select the procedure best suited to its circumstances and aims. Consider a company in financial difficulty the debt of which needs to be restructured to avoid insolvent liquidation. Depending upon how co-operative its creditors are and how complex the required restructuring of the debt is, the company may simply pursue renegotiation with its creditors or it may use one or a combination of: the company voluntary arrangement procedure in Pt I of the Insolvency Act 1986, the Part 26 scheme of arrangement procedure in the Companies Act 2006 and the administration procedure in Pt II and Sched B1 of the Insolvency Act 1986. Another example is a basically healthy company wishing to sell one of its businesses. Here, although a straightforward business sale agreement may suffice, commercial and tax advantages are often secured by using a section 110 scheme of reconstruction, sometimes called a ‘demerger’ scheme, or, in complex cases, a Part 26 scheme of arrangement may be used. The terminology used in relation to restructuring can be confusing and a word of warning is appropriate. Terms are often used in a practical sense, without the need to focus on legal significance, resulting in terms being used that connote a range of different legal activities. ‘Merger’ and ‘takeover’ are examples of this. Some of the terms used in statutory provisions relevant to this chapter are also unclear in meaning and scope. For example, whilst the legal meaning of the composite term ‘reconstructions and amalgamations’ can be established from s 900 of the Companies Act 2006, what constitutes a reconstruction distinct from an amalgamation is not legally clear cut. A by-product of the uneasy fit of the law with practical situations is the absence of a broadly agreed upon structure for presenting the law and statutory procedures covered in this chapter. Bearing in mind the comments above and as this chapter provides an outline only of the relevant law and legal procedures, a structure that begins with the law has been adopted and the material covered in this chapter is organised into four sections as follows: schemes of arrangement and reconstruction, CVAs and small company moratora, administration and takeovers.