Business Reorganization & Restructuring
The reorganization of business can have varied meanings to different people. The general meaning can be as simple as looking at how a business is run and introducing changes. It can also mean finding ways to extend the life of a company possibly facing imminent bankruptcy, or that has already been declared bankrupt. This is done through either extending credit lines or negotiating with suppliers to continue providing materials to keep the organization afloat.
Restructuring can include reducing or increasing the number of branches, reconstituting the board, or even selling off shares to the public or a significant shareholder.
Restructuring can also involve reshaping the goals and missions of the business that makes it either focus on new areas or expand to other areas that were not part of the main core business.
Steps of Reorganizations
Most of the reorganization steps start internally, and if a business is big enough to have an internal legal advisor, they will initiate this step together with the management. If there is no internal legal secretary, an external legal firm is responsible for this change. In the case where there is a legal suit on reorganization, a court can order this process to commence, especially in instances of bankruptcy.
Once a legal process commences, and the bankruptcy court rules that there is a need for reorganization, through a reorganization plan, the company begins to pay its debtors and attempts to change how it collects and uses its finances.
Many States allow for companies to reorganize their affairs rather than face liquidation. This involves getting new terms on loans and staggering payments. This is also supported by the U.S. Bankruptcy law which sees liquidation as the last step in a troubled organization.
Once a company secures new credit repayment schedules, the company can then move to seal the holes that led to the problem or challenges it is facing. This can include restructuring the organization, changing the management of the firm, or reducing the workforce.
Things to look out for before you reorganize your company
Before a company reorganizes itself, there are vital issues that our attorneys look out for to ensure the company does not go back to the previous situation it was. There is a need to do a proper analysis of the life of the organization and explore ways and means of introducing changes. Though some of these things are agreed upon in a bankruptcy court, there is a need for any legal team that is managing this process to be sure what is best for the organization.
- Does the organization have the capacity to remain afloat: Sometimes, as a receiver-manager or a legal team managing a reorganization process is forced to make radical decisions that eventually affect the life of a company? For example, if they evaluate the cause of the collapse was as a result of a sweeping change in the fortunes of an industry, they might not see the need to continue the losses. This was common when many coal and iron companies in the coal belt continued when the industry crumbled.
- Is the business model being used as the main reason it failed? The reorganization team can look at how the company had been conducting business. If most of the sales were coming from one area of focus, they might recommend casting the net wider. This is part of the restructuring plan that can lead the company into new areas and adopting a new business model.
- Would the company shareholders achieve more if the company was liquidated rather than extending its life? Rather than waiting until the value of the company is too low, our attorneys might float an idea of immediate liquidation to shield the owners and shareholders from losing the value of their work. This is done by calculating the amount the company owes and how much workers would be paid and then figuring the balance.
- Is there an option for merger and acquisition? Some business organizations move into mergers to expand its reach and use the strength of numbers to attack the market?
Steps of Restructuring a Business
A company may be forced to undergo restructuring to get more market benefits than it is currently getting. This can include changing the ownership of the company, reconstituting the board, reducing the number of branches or outlets, and changing how it conducts business.
This gives a company more strength and advantage on the market and helps avoid loss of profit or reduced income.
The primary process of restructuring is guided by both legal and financial experts who evaluate the strengths and weaknesses of the organization. They also assess how the company has been running and propose new ways of getting to the next level that might be beneficial to the overall good of the company.
After coming up with a plan, a legal team deals with matters that touch on the staff, their contracts and deals with worker’s representatives or trade unions, where applicable. The team also deals with office matters rather than the business side of things. They also deal with agreements on new acquisitions as well as mergers.
This is then pushed through the board to approve some of the changes recommended. If the board doesn’t like the changes, the team can then be forced to redraft new options. This process can be delicate as there are many influential people within the company who stand to lose in the restructuring.
The team also looks at the taxation issues and irons out any debts that might be outstanding in the event a company is sold. Taxes, in particular, can be tricky because as much as a company might be meeting its tax obligations; there is a need to check whether there exist gray areas before mergers and acquisitions.
When to Restructure a Business Organization
There are specific reasons that lead a company to restructure. Most of these reasons are based on the need to reduce the costs of running a business as well as ensuring the company is making business sense in the field.
- Reduce operational costs: This includes reducing the number of employees, the cost of running different outlets, cut on non-profitable operations, and focus on the main business of the day.
- Improve its competitive advantage, among others: This involves shifting the business focus to the core business of the organization.
- Prepare for a merger with another company: When a new company comes on board, there are casualties, mainly managers and staff. This means a company that merges with another has to reduce cases of duplication of roles and tasks and jobs overlay. In most cases, mergers lead to loss of jobs.
- Weed out some dead wood, including inside the board: Some organizations are run by boards that aren’t in tune with the mission of the organization. Restructuring helps introduce some new energy and new ideas in running the company. It also helps in reducing the influence of some board members who have not had a significant impact on the team.
- Introduce new technologies: When there is a need to introduce new technologies that will help run the company, an organization is forced to lay off some staff or even add new business models that will push the organization to greater heights.
- Introduce a new strategic partner: This is different from a merger. This is where a company gets engaged with a new partner in doing business that will help it get into new areas of focus. The partner can also be a merger. When this happens, the company needs to restructure its goals and mission to be in tandem with the new partner.