Continuing with our 'Crunching Concepts' series, our next stop lands us in the terrain of insolvency and restructuring. These terms are often floating around in the corporate environment, and while they might seem complex and unapproachable at first, this instalment will defog these concepts and present them in a more digestible manner.
What are Insolvency and Restructuring?
These are two interconnected processes bound by UK corporate law. Insolvency refers to a situation where a company has more liabilities than assets and is unable to pay off its debts as they come due. On the other hand, restructuring is the process by which a company reorganises its legal, operational, and ownership structures enabling it to either continue operating or to salvage its assets and remaining value.
Why are Insolvency and Restructuring Important?
The role of insolvency and restructuring procedures in corporate law is paramount due to several reasons:
1. They are intrinsic in safeguarding the rights and interests not just of troubled companies, but also of their creditors, employees and other stakeholders.
2. Efficiently handling insolvency and restructuring processes can facilitate fair treatment of all parties involved, maximise debt recovery, and provide a lifeline to companies teetering on the brink of collapse.
3. Insolvency procedures such as administration and voluntary arrangements provide necessary respite and a framework that can be used to rescue and restructure firms struggling financially, thus mitigating potential job losses and economic damage.
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