When businesses fall on hard times, there are many different ways that they might try and get themselves back into a viable position. One of the common methods used is restructuring. Restructuring plans need to be granted before a business can officially undergo the process, as has happened recently for the German company Adler. On April 12th, Adler Group SA’s restructuring plan (which was put together to stop the company from falling into complete collapse) was approved by the High Court in London.
What is a Restructuring Plan?
Let’s start by establishing what a restricting plan actually is. This is a formal arrangement which has been agreed upon by a company which is usually struggling and the creditors that it has outstanding liabilities to. These plans are used by companies that have outstanding debt and are at risk of collapse but that could still theoretically be rescued rather than placed into liquidation.
There are a few different forms that a restructuring plan could take, which include:
- A compromise in the debt that is owed.
- An agreement to swap debt for equity.
- A resetting of covenants.
- Rescheduling debt payments so that they can be owed at a later date.
The terms that make up a restructuring plan can be changed so that they align best with the circumstances of both the business and the respective consumers. Generally speaking, these plans are approved by creditors but there are some instances, such as with Adler Group, where the courts need to be involved. This is when there are creditors who are ‘out of the money’, in other words, they do not have any economic interest in the company if the plan were not approved. The plan also has to be sanctioned by the Court as well.
Why Do Businesses Opt for a Restructuring Plan
A Restructuring Plan can be helpful for businesses for a number of different reasons as they allow organisations to completely restructure their balance sheet and in turn release working capital into their business. It stops businesses from having to completely close and opens up the possibility for increased revenue and different monies, whilst also taking care of existing debt that a company might have.
When Might a Business Use a Restructuring Plan?
Some of the common situations where a business might use a restructuring plan include but are not limited to the following:
- Directors will opt to use a restructuring plan where the business works and is viable except for the fact there is underlying debt involved.
- The plan can be catered towards one debt in particular or a group of contracts where the terms involved are relatively onerous. The idea is that if it were not for this one debt or group of contracts then the company would be solvent and operating fine. This has already been seen previously in the categorisation and restructuring of property leases. It could apply to other contracts as well so long as they were stopping a business from operating normally.
- A restructuring plan can also be used to provide a sustainable platform for the injection of new monies into a business. They are a good option when a shareholder is interested in keeping their portion and as such wants to extend further funding in the future. That being said, this only applies when such funding is used solely for the benefit of the business.
- A restructuring plan can also be used in order to deal with an underperforming division of a group, within a wider group. Essentially, if an underperforming group needs to be wound down, a restructuring plan can set the groundwork for how this will take shape and what the company will look like afterwards.
The Situation with Adler Group
The restructuring plan put forward by Adler Group was approved by the Judge Thomas Leech. Representatives of the English subsidiary of the German company said that it was likely going to enter insolvency proceedings at the end of April were the restructuring plans not approved. Creditors’ representatives have already notified the Court that they intend on appealing the decision.
Adler finds itself in this difficult position thanks to a massive downturn in the German property market. With energy costs rising as a result of the Russian invasion of Ukraine and the impact of the covid-19 pandemic, the property market in Germany is facing a slump which is proving to be a big hindrance for the company.
The company had a debt of 500 million euros due at the end of April, which Adler representatives had to come forward and confirm that they would not be able to pay. On top of that, the company have external debts of around 6.1 billion euros. The restructuring plan which has been approved will make it so that the company can borrow a further 938 million euros of new funding and the terms of the unsecured debts between 2024 and 2029 are going to be amended. This will give the company a bit more breathing room and allow for more time for the organisation to repay the creditors it already owes money to.
As previously mentioned, a number of creditors, including DWS Investment GmbH and Strategic Value Partners oppose the plan and do not agree with the fact it has been approved. They have confirmed that they are going to take this matter further and appeal the decision to allow for the restructuring plan.
Are You Interested in Restructuring?
As can be seen above, there are many different reasons as to why a business might restructure and several benefits that come with such restructuring as well. It can be beneficial to businesses regardless of their size and as such, if you are struggling at the moment then it could be worth considering. You should reach out to experts such as Leading UK who will be able to help you put a plan in place. If you have any more questions or would like any further information then do not hesitate to get in touch.