Restructuring of companies and partnerships

Karolina Sieraczek

15 May 2021

A business that loses financial liquidity does not have to end up bankrupt. Law provides for ways to save businesses, and one of them is restructuring. It is a remedial action designed to help regain financial stability and enable further development of the business.

Restructuring – definition and application

Restructuring is a series of actions taken at various levels of business activity to improve the financial standing and market position of a business. Depending on a business structure, they may include actions on the equity or organisational level. Before introducing changes in the business’ functioning, a restructuring plan is usually prepared first. If it is detailed (takes into account all aspects of business’s functioning) and then fully implemented, it may bring the expected results.

What is restructuring for? First and foremost, it is intended to improve the overall situation of a business. With restructuring proceedings enterprises may reach an agreement with creditors and work out solutions which are satisfactory to both parties. Restructuring is often the only way to avoid business’s insolvency and, consequently, bankruptcy.

Which business entities can be subject to restructuring

Companies, partnerships and civil law partnerships may implement restructuring proceedings. How are they restructured? The restructuring may be carried out in one of four types of restructuring proceedings. They are:

• procedure for approving a voluntary arrangement;
• expedited voluntary arrangement proceedings (postępowanie układowe);
• voluntary arrangement proceedings;
• rehabilitation proceedings (postępowanie sanacyjne).

Restructuring proceedings do not always have to proceed in court. A lot depends on the financial standing of a business.

Restructuring of companies

Incorporated companies include limited liability companies and joint stock companies. Companies can be restructured, among others, by a merger (also in the form of acquisition) or demerger. In some cases one of the ways to regain financial liquidity of a business it to restructure.

Restructuring of partnerships

Restructuring of partnerships is not the only solution available. Other types of partnerships, such as general partnerships, can be restructured too.
Restructuring of companies and partnerships always has priority over bankruptcy. Restructuring proceedings are also an alternative for businesses which might get out of financial difficulties.

Restructuring of a limited liability company

A limited liability company may be restructured by securing it against court enforcement. In this way the company has a real chance to increase its value and repay its liabilities.

Restructuring of a civil law partnership

Restructuring of civil law partnerships is non-standard because they cannot be restructured as businesses – it is the partners who are the party to restructuring proceedings.

Restructuring of a general partnership

A general partnership may be restructured by, among others, merging it with another general partnership, thereby forming either a limited liability company or a joint-stock company.

Restructuring of a joint-stock company

A change in the business environment or loss of key customers may result in a need to restructure a joint-stock company. Just like in the case of any other restructuring proceedings, it will be necessary to develop a restructuring plan and work out an arrangement with creditors.

When to commence the restructuring

Restructuring proceedings are carried out in companies and partnerships which are insolvent or on the verge of insolvency or bankruptcy. However, it is often problematic to determine whether there are grounds for initiating a restructuring process. This is where Rödl & Partner may help you by offering comprehensive advice on both restructuring and transformation of businesses. We also advise on liquidation of companies.
Nonetheless, sometimes restructuring is not an option. If restructuring proceedings are to the detriment of the creditors, make the indebted business unable to pay on an ongoing basis the costs of the proceedings or the liabilities arising after opening the proceedings, then the initiation of the restructuring proceedings is not justified. In such a case, the available options are reduced to liquidation of the business or bankruptcy/insolvency proceedings.

Why is it worth using professional advice on business restructuring

Restructuring is a chance for businesses to regain financial liquidity. To make the most of that chance, it is worth using expert help. Development of a plan to regain business’s position on the market and improve its financial liquidity requires an analysis. Rödl & Partner advisers help to prepare well for restructuring proceedings and to achieve the goal, i.e. to get rid of debt.