The options for an insolvent business include raising additional capital or substituting capital for debts. These are not formal insolvency processes and are dependent upon the willingness of external creditors to accept a level of risk with the upside of an equity stake if the business successfully overcomes its problems.
Work outs are another form of non-statutory voluntary arrangement which freezes a company’s debts whilst it seeks to stabilise the business, usually by obtaining additional capital.
We can assist business owners by identifying the most effective form of restructuring, depending upon the debt and capital profile of the company. In straightforward cases the lender may swap some of its loan for an existing class of shares; in other cases a special class of shares (usually non-equity) may be created (typically redeemable or convertible preference shares) effectively subordinating the loan to the company’s general creditors. The objective is to restore financial stability and make the company more credit-worthy in its trading relationships.