Legal Considerations When Restructuring a UK Company

Company directors in the UK have clear legal duties under the Companies Act 2006, including:

• Duty to promote the success of the company (Section 172)
• Duty to exercise reasonable care, skill, and diligence (Section 174)
• Duty to avoid conflicts of interest (Section 175)
• Duty to act in good faith and in the best interests of the company

However, if a company is facing insolvency or near-insolvency, directors’ duties shift. Their primary duty becomes protecting the interests of creditors, not shareholders.

Key Point:

If you suspect your company may become insolvent, your responsibilities change immediately. Every decision must be made with creditors in mind.

Explore: Company Restructuring vs Insolvency

Under the Insolvency Act 1986, directors can be held personally liable if they:

• Continue trading when they knew (or should have known) there was no reasonable prospect of avoiding insolvent liquidation.
• Fail to take every reasonable step to minimise potential losses to creditors.

This is known as wrongful trading.

Restructuring must therefore be planned carefully and transparently, avoiding actions that worsen the position of creditors.

Restructuring often affects employees through role changes, redundancies, or new working arrangements.

Directors must comply with:

• Employment rights legislation (e.g., redundancy pay, notice periods)
• Collective consultation obligations if 20 or more redundancies are proposed within 90 days
• TUPE regulations if a business or part of it is sold or transferred

Failing to follow correct procedures can lead to:

• Employment tribunal claims
• Financial penalties
• Reputational damage

Early, honest communication with staff is key.

Learn more: How to Approach a Company Restructure

When restructuring debts or negotiating new payment terms, directors must:

• Treat creditors fairly and equally (unless specific legal priorities apply)
• Avoid showing “preference” to one creditor over others
• Disclose all relevant financial information honestly

Preferential treatment of certain creditors, or transactions at undervalue, can be challenged by liquidators if the company later enters insolvency.

Clear, professional negotiations are essential.

Related: The Restructuring Plan (UK)

Good documentation is vital.

During a restructure, directors should:

• Hold regular board meetings
• Record all decisions and reasoning in detailed minutes
• Seek independent advice where needed and record this
• Keep clear financial records

This creates a clear audit trail demonstrating that directors acted responsibly and in good faith, which can be crucial if the company’s actions are later scrutinised.

Sometimes restructuring is achieved through formal insolvency procedures, such as:

• Company Voluntary Arrangements (CVAs)
• Administration
• Restructuring Plans (under the Corporate Insolvency and Governance Act 2020)

Each process has specific legal steps and protections.

Seeking early professional advice ensures the company chooses the right path and complies with all requirements.

Explore: Business Turnaround vs Restructuring

• Ignoring early signs of financial distress

• Prioritising one creditor unfairly
• Making large asset sales without proper valuation or advice
• Failing to consult staff properly before redundancies
• Continuing to trade recklessly when insolvency is likely

Awareness and early advice are the best protections.

At Business Helpline, we help directors navigate restructuring responsibly, balancing business goals with legal duties.

We offer:

• Free, confidential 24/7 advice for directors
• Practical guidance tailored to your company’s situation
• Support accessing trusted insolvency practitioners, employment law advisors, and financial experts if needed

If you’re considering restructuring your company, protect yourself and your business. Call Business Helpline today on 0800 088 2142