Why Do Companies Restructure Their Debt?

A business can face a financial crisis for various reasons. When a company defaults on lending terms, has unmanageable operating expenses, and its owners don’t take salary or use personal funds to clear business debt—it usually resorts to corporate debt restructuring.

What is corporate debt restructuring?

Companies of all sizes submit a debt reduction proposal to avoid defaulting on existing debt, and to gain short-term flexibility and cash flow to make the debt load more manageable.

It is done in multiple ways, like negotiating lower interest rates or extending the due dates of outstanding bills. This is either carried out formally through the Bankruptcy and Insolvency Act, or informally by negotiating with company creditors.

Corporate debt restructuring allows you to avoid filing for bankruptcy as it’s a less expensive process. The approach is also different in that there are often direct negotiations between a company and its creditors. 

How does debt restructuring work?

Corporate debt restructuring is a preferred option for both businesses and creditors—businesses avoid bankruptcy, and lenders walk away with more than they would have through a bankruptcy proceeding. 

In some cases, the process will result in a debt-for-equity swap. This means creditors will cancel some or all debt obligations, in exchange for equity in the business or organization. 

Sometimes, companies will “take a haircut”, meaning a part of what is due will be written off or repaid at a discount level. 

How do I start the process? 

We highly recommend working with a Licensed Insolvency Trustee (LIT) to navigate this process. A LIT can help you examine your outstanding debt, determine which debts you should reorganize, and take a look at your overall financial situation. 

Collaborating with a LIT means you’ll know how large your debt payments can be, and you can create a sustainable budget and repayment strategy. 

We can help 

Facing financial hardship is stressful. There is power in asking for help, and our Licensed Insolvency Trustees (LITs) are available for a free, no obligation consultation. Contact us to learn more about corporate debt restructuring and if it makes sense for your business.