There are a lot of terms that float around the insolvency space that become so commonplace within the industry that we must remember their meanings aren’t universally known or understood. Many times these terms will have clear definitions that make them uniquely used for specific environments and circumstances. However, some terms are less concretely understood, even within the industry, as closely-related terms become conflated and used interchangeably. This is the case for ‘restructuring’ and ‘reorganising’. If they’re being used in this way, this can be really confusing to clients, so here is our clearest differentiation, and similarities, between reorganisation and restructuring in terms of the financial movements of a company.
What is reorganisation?
There is no single consensus on what reorganisation is officially defined as, however there is a broadly accepted definition that is stated in the Harvard Business Review, citing it as involving the changing of business units while not disrupting the base business structure.
Reorganisation is typically undertaken when a business is in financial difficulty and the need for significant and disruptive changes are required to pay creditors, keep their head above water and/or engage in a last resort before becoming insolvent.
Reorganisation includes downsizing the team, selling or eliminating divisions, replacing or removing management and cutting other budgetary constraints. Usually companies reorganise to improve their efficiency, increase profits, reduce or eliminate financial troubles.
Reorganisation typically involves an informal appointment such as engaging a consultant or seeking advice from an insolvency practitioner.
What is restructuring?
Instead of being an interchangeable term (or a completely separate one from reorganisation) restructuring is instead often part of the reorganisation process. Restructuring involves any fundamental changes in a business’s resources and activities.
Restructuring would occur when a business is close to, or at the point of, being insolvent. Or, when a company is experiencing a merger or acquisition, that needs significant overhaul of the brand, strategy, set-up, spend and structure. There are also a number of other factors that may require restructuring to a business, however it is always a more crucial move to stabilise a company in some way.
The main aim is to reduce or eliminate financial troubles and improve company performance in order to avoid bankruptcy or liquidation.
Restructuring typically involves a formal appointment such as adopting a safe harbour engagement, voluntary administrator, or engaging an investigative accountant to report on the company.
How can Shaw Gidley help you with reorganisation and restructuring?
Shaw Gidley are experts in restructuring (and reorganising) and are able to support you with a strategy designed to your specific circumstances be it a formal or informal appointment. Rarely are restructuring strategies the same from company to company, and there are a lot of moving parts that need a great deal of attention. We can walk you through all stages of the process and help you come out with the best solution for your needs, now and in the future, and your business.
Are you looking into restructuring and reorganisation? Call our knowledgeable team today for an obligation free consultation and get your business and future on track.
