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A board should develop a restructuring plan in a number of circumstances particularly in circumstances where the company is either distressed or moving into the twilight zone of distress. That situation can arise for a number of reasons: there could be
- a macro event which has impacted upon the company's ability to trade;
- a collapse in commodity pricing; or
- a sudden change in customer base ‒ anything which changes the business' usual planning of the company.
The Government's recently announced as part of its innovation package the idea of safe harbour defences for boards which roughly work this way: if a board in distress circumstances engages an external adviser much as they would in an M&A transaction taking on board an investment banker's adviser. This person will come into the company, work with management to develop a plan which is designed to maintain the company's solvency and a go-forward proposition. The plan will then be built, measured and reported upon to the board so the board can discharge their fiduciary duties and allow the board to take comfort that the company is solvent, will remain solvent, will continue to build shareholder wealth, and has a plan to move forward.