Corporate Restructuring — International Practice

Corporate restructuring is the process by which a company reorganises its legal, financial, or operational structure to address distress, improve efficiency, or reposition for growth. Across jurisdictions, the tools available range from informal creditor workouts to formal insolvency proceedings, each carrying distinct legal consequences for shareholders, creditors, and management. This guide covers the principal restructuring mechanisms used internationally, the legal frameworks that govern them, the roles of key stakeholders, and the practical considerations that determine whether a restructuring succeeds or fails.

Corporate restructuring is not a single procedure. It is a spectrum of interventions that a company, its advisers, or a court may initiate when the existing structure is no longer viable or optimal. At one end sits voluntary reorganisation - a board-driven decision to merge subsidiaries, sell a division, or refinance debt without any formal insolvency element. At the other end sits court-supervised liquidation, where assets are distributed to creditors in a statutory order of priority.

Between these poles lie the mechanisms most relevant to distressed businesses operating across borders: schemes of arrangement, debt-for-equity swaps, pre-packaged insolvency sales, and cross-border recognition proceedings. Each mechanism is shaped by the law of the jurisdiction where it is initiated, but its effects often need to be recognised and enforced in multiple countries simultaneously.

The central challenge in international corporate restructuring is that insolvency law remains primarily national. A restructuring plan confirmed by a court in one country does not automatically bind creditors or courts in another. Practitioners must therefore map the company';s assets, liabilities, and creditor base against the legal systems that have jurisdiction over them, then design a structure that achieves binding effect in each relevant place.

A non-obvious requirement that many founders and CFOs overlook is the concept of the Centre of Main Interests, commonly abbreviated as COMI. Under frameworks such as the EU Insolvency Regulation and the UNCITRAL Model Law on Cross-Border Insolvency, the jurisdiction where a debtor';s COMI is located determines which court has primary authority over the proceedings. COMI is presumed to be the place of the registered office, but it can be rebutted by evidence of where management decisions are actually taken. Establishing or shifting COMI before filing can materially affect the outcome of a restructuring.

Different legal systems offer different tools, but several mechanisms have become standard reference points in international practice.

Schemes of arrangement and restructuring plans. A scheme of arrangement is a court-sanctioned agreement between a company and its creditors or shareholders. It allows a majority - typically defined by both headcount and value thresholds - to bind a dissenting minority. England and Wales developed one of the most widely used schemes frameworks globally, and its restructuring plan procedure, introduced by the Corporate Insolvency and Governance Act, added a cross-class cram-down mechanism that allows a plan to be imposed on a dissenting class of creditors if certain conditions are met. Similar mechanisms exist in the Netherlands under the WHOA procedure and in Germany under the StaRUG framework.

Administration and pre-packaged sales. Administration is a procedure in which an insolvency practitioner takes control of a company to achieve one of a hierarchy of statutory objectives: rescuing the company as a going concern, achieving a better result for creditors than liquidation would produce, or realising assets to pay a secured creditor. A pre-packaged administration - commonly called a pre-pack - involves negotiating and agreeing the sale of the business before the administrator is appointed, then completing the sale immediately after appointment. Pre-packs are controversial because unsecured creditors often receive little or nothing, but they preserve jobs and business value more effectively than a trading administration.

Chapter 11 reorganisation. The United States Chapter 11 procedure under the Bankruptcy Code is the most influential restructuring framework in the world. It allows a debtor to remain in possession of its assets while proposing a plan of reorganisation, subject to creditor voting and court confirmation. The automatic stay that takes effect on filing immediately halts most creditor enforcement actions, giving the debtor breathing room to negotiate. Chapter 11 is frequently used by non-US companies with US assets or US-law governed debt, because the automatic stay and the plan confirmation process can bind creditors globally if the debt instruments are governed by New York law.

Informal workouts and standstill agreements. Not every restructuring requires a court. Where a company has a manageable number of creditors and a viable underlying business, an out-of-court workout can be faster, cheaper, and less damaging to commercial relationships. A standstill agreement suspends creditor enforcement for an agreed period while the parties negotiate. Intercreditor agreements govern the relative rights of different creditor classes during the standstill. The risk is that a single holdout creditor can break the standstill by commencing enforcement, which is why informal workouts are most effective when the creditor group is small and cohesive.

Liquidation and winding up. Where rescue is not viable, an orderly liquidation distributes assets to creditors according to the statutory priority waterfall. Secured creditors rank first, followed by preferential creditors such as employees and certain tax authorities, then unsecured creditors, and finally shareholders. In practice, unsecured creditors in a liquidation frequently recover little or nothing. Cross-border liquidations raise additional complexity because assets in foreign jurisdictions must be realised through local procedures, and the priority rules may differ from those of the main proceedings.

International corporate restructuring operates within a patchwork of national laws, bilateral treaties, and soft-law instruments. Understanding which framework applies in a given situation is a threshold question that determines the entire strategy.

The UNCITRAL Model Law on Cross-Border Insolvency, adopted by over fifty jurisdictions including the United States, the United Kingdom, Australia, Japan, and South Korea, provides a mechanism for courts to recognise foreign insolvency proceedings and grant relief in support of those proceedings. Recognition as a "foreign main proceeding" triggers an automatic stay equivalent to the one available in domestic proceedings. Recognition as a "foreign non-main proceeding" gives the court discretion to grant relief. The Model Law does not harmonise substantive insolvency law; it only provides a procedural bridge between national systems.

Within the European Union, the EU Insolvency Regulation establishes a mandatory framework for insolvency proceedings opened in member states. The regulation determines which member state';s courts have jurisdiction based on COMI, requires automatic recognition of proceedings opened in the member state of COMI, and governs the relationship between main and secondary proceedings. Secondary proceedings, which are limited to assets located in the secondary jurisdiction, can be used strategically to protect local creditors or to facilitate asset sales in a particular country.

The United Kingdom, following its departure from the EU, has developed its own cross-border recognition framework. English courts retain broad discretion to recognise foreign proceedings under common law principles and under the Cross-Border Insolvency Regulations, which implement the UNCITRAL Model Law. The English restructuring plan has been used successfully by companies with no English connection other than English-law governed debt, raising questions about jurisdictional reach that courts continue to address.

In practice, founders should consider that the absence of a treaty or Model Law adoption in a particular jurisdiction does not mean that recognition is impossible. Many courts will recognise foreign insolvency proceedings on the basis of comity, provided the foreign proceedings meet basic standards of procedural fairness. However, comity-based recognition is discretionary and unpredictable, which is why treaty frameworks are strongly preferred.

A common mistake made by management teams facing distress is to delay engaging cross-border insolvency counsel until enforcement actions have already begun in multiple jurisdictions. By that point, the options for a coordinated restructuring are significantly narrowed. Early legal mapping of the creditor base and asset locations is essential.

Corporate restructuring is fundamentally a negotiation between stakeholders with competing interests. Understanding the legal rights and practical leverage of each stakeholder class is essential to designing a workable restructuring.

Secured creditors hold security over specific assets. Their primary concern is the value of the collateral relative to the debt. In a restructuring, secured creditors typically have the strongest negotiating position because they can enforce their security outside formal proceedings in many jurisdictions. However, enforcement is often commercially destructive, which gives the debtor leverage to propose a restructuring that preserves more value than a fire sale.

Unsecured creditors - including trade creditors, bondholders, and holders of unsecured bank debt - rank below secured creditors in the priority waterfall. Their recovery in a liquidation is often minimal. In a restructuring, unsecured creditors may accept a haircut on their claims in exchange for equity in the reorganised company, extended payment terms, or other consideration. The creditors'; committee, where one is formed, plays a central role in negotiating on behalf of the unsecured creditor class.

Shareholders are the residual claimants. In a solvent restructuring, shareholders retain their equity. In an insolvent restructuring, the absolute priority rule - applied strictly in the United States and more flexibly in some other jurisdictions - requires that creditors be paid in full before shareholders receive any value. In practice, shareholders often retain some equity as part of a negotiated settlement, particularly where their cooperation is needed to implement the restructuring.

Management and directors face personal liability risks in many jurisdictions if they continue to trade while insolvent. The wrongful trading provisions in English law, the insolvent trading rules in Australia, and equivalent provisions in most civil law systems impose duties on directors to consider creditor interests once insolvency is foreseeable. A common mistake is for directors to continue incurring liabilities in the hope that the business will recover, without taking formal legal advice on their duties. This can result in personal liability for the debts incurred after the point at which insolvency became inevitable.

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A cross-border restructuring typically follows a recognisable sequence, even though the specific steps vary by jurisdiction and by the nature of the distress.

The first stage is financial and legal assessment. The company, usually with the assistance of financial advisers and legal counsel, prepares a detailed analysis of its assets, liabilities, cash flow, and creditor structure. This assessment identifies the extent of the insolvency or near-insolvency, the jurisdictions where assets and creditors are located, and the legal tools available in each jurisdiction. The assessment also identifies any security interests, intercreditor agreements, or change-of-control provisions that could complicate a restructuring.

The second stage is stakeholder engagement. Management or the board engages with key creditors, typically under a non-disclosure agreement, to share financial information and explore restructuring options. This stage often involves the appointment of a financial restructuring adviser and the formation of a steering committee of major creditors. The goal is to reach a consensus on the broad outlines of a restructuring before committing to a formal process.

The third stage is the design and documentation of the restructuring plan. Legal counsel drafts the plan documents, which may include a scheme of arrangement, a Chapter 11 plan, a WHOA plan, or a combination of instruments in different jurisdictions. The plan must address the treatment of each creditor class, the governance of the reorganised company, and the conditions to implementation. In a cross-border restructuring, the plan documents must be designed to achieve binding effect in each relevant jurisdiction.

The fourth stage is the formal process. Depending on the mechanism chosen, this may involve filing in one or more courts, convening creditor meetings, obtaining court approval, and seeking recognition of the proceedings in foreign jurisdictions. Timelines vary significantly. An English scheme of arrangement typically takes three to six months from filing to sanction. A Chapter 11 plan confirmation can take a similar period in a pre-negotiated case, or significantly longer in a contested case. An informal workout has no fixed timeline but typically resolves within three to twelve months.

The fifth stage is implementation. Once the plan is approved and recognised, the company implements the agreed restructuring steps: issuing new equity, repaying or converting debt, transferring assets, and restructuring its corporate group. Implementation requires close coordination between legal, financial, and operational teams across all relevant jurisdictions.

In practice, founders should consider that the costs of a cross-border restructuring are substantial. Professional fees for legal and financial advisers, court filing fees, and the costs of creditor committees can run into the millions for a complex multinational restructuring. These costs are typically funded by the company';s existing cash or by a debtor-in-possession financing facility arranged as part of the restructuring.

One of the most consequential decisions in a cross-border restructuring is the choice of primary jurisdiction. This decision affects the tools available, the timeline, the costs, the treatment of creditors, and the likelihood of achieving recognition in other countries.

England and Wales is frequently chosen as the primary jurisdiction for European and international restructurings because of the flexibility of the scheme of arrangement and restructuring plan, the sophistication of the judiciary, and the global enforceability of English court orders. The English restructuring plan';s cross-class cram-down mechanism makes it particularly powerful for complex capital structures with multiple creditor classes.

The United States is the preferred jurisdiction for companies with significant US operations, US-law governed debt, or US-listed securities. The automatic stay, the debtor-in-possession financing market, and the established Chapter 11 practice make it the most comprehensive restructuring framework available. However, Chapter 11 is also expensive and time-consuming, and the disclosure requirements are extensive.

The Netherlands has emerged as a significant restructuring jurisdiction following the introduction of the WHOA procedure. The WHOA allows a company to propose a restructuring plan to creditors and shareholders, with a court confirmation mechanism that can bind dissenting classes. The Netherlands'; position within the EU and its efficient court system make it an attractive option for European restructurings.

Germany';s StaRUG framework, introduced to implement the EU Restructuring Directive, provides a pre-insolvency restructuring tool that allows a company to restructure its financial liabilities without entering formal insolvency proceedings. The StaRUG is particularly useful for companies that wish to avoid the reputational damage associated with formal insolvency.

A practical scenario illustrates the choice: a German operating company with English-law governed bonds and assets in multiple EU member states might use the English restructuring plan to bind the bondholders, while using the EU Insolvency Regulation to coordinate proceedings across the EU member states. The COMI of the German company would need to be assessed carefully to determine whether English courts have jurisdiction to sanction the plan.

A second scenario: a US-listed company with operations in Asia and debt governed by New York law might file Chapter 11 in the United States to obtain the automatic stay and use the UNCITRAL Model Law to seek recognition in the Asian jurisdictions where its assets are located. The Chapter 11 plan, once confirmed, would bind all creditors holding New York-law governed debt, regardless of their location.

Many underestimate the importance of intercreditor agreements in determining the outcome of a restructuring. These agreements, which govern the relative rights of different creditor classes, can restrict the ability of junior creditors to take enforcement action, require senior creditors to share proceeds in certain circumstances, and determine the voting thresholds required to approve a restructuring plan. Reviewing and understanding the intercreditor agreement is an essential early step in any restructuring.

What is the difference between restructuring and insolvency, and does it matter which applies?

Restructuring is a broad term that covers both formal insolvency proceedings and out-of-court processes aimed at reorganising a company';s financial or operational structure. Insolvency is a legal status - typically defined as the inability to pay debts as they fall due, or having liabilities that exceed assets - that triggers specific legal obligations and opens access to formal court procedures. The distinction matters because formal insolvency proceedings carry reputational consequences, trigger automatic stays and other legal effects, and impose duties on directors that do not apply in a purely voluntary restructuring. A company can undertake a significant restructuring - including debt reduction, asset sales, and equity issuance - without ever entering formal insolvency, provided its creditors agree voluntarily. Where creditor consensus cannot be achieved, formal proceedings may be necessary to bind dissenting creditors.

How long does a cross-border restructuring typically take, and what does it cost?

Timelines depend heavily on the complexity of the creditor structure, the number of jurisdictions involved, and the degree of creditor cooperation. A pre-negotiated restructuring with broad creditor support can be completed in three to six months from the start of formal proceedings. A contested restructuring with multiple creditor classes and cross-border recognition issues can take one to two years or longer. Costs are similarly variable. Professional fees for legal and financial advisers are typically the largest component, followed by court costs and the costs of creditor committees. For a mid-size cross-border restructuring, total professional fees commonly run into the low to mid millions. For a large multinational restructuring, fees can be substantially higher. These costs are generally funded from the company';s available cash or from debtor-in-possession financing arranged as part of the process.

Should a distressed company pursue an out-of-court workout or a formal insolvency process?

The choice depends on several factors: the number and cohesion of the creditor group, the severity of the distress, the need for an automatic stay to halt enforcement, and the reputational sensitivity of the business. An out-of-court workout is faster, cheaper, and less damaging to commercial relationships, but it requires the voluntary agreement of all or substantially all creditors. A single holdout creditor can derail an informal process. Formal proceedings provide tools - such as the automatic stay, the cram-down mechanism, and court supervision - that can bind dissenting creditors and provide certainty of outcome. In practice, many restructurings combine both approaches: an informal negotiation phase to build creditor consensus, followed by a formal process to bind any holdouts and provide legal certainty. The decision should be made early, with full legal advice, because the window for an orderly restructuring can close quickly once enforcement actions begin.

Corporate restructuring across borders requires a clear-eyed assessment of the legal tools available in each relevant jurisdiction, the rights and leverage of each creditor class, and the practical steps needed to achieve a binding and enforceable outcome. The frameworks available - from English schemes and US Chapter 11 to the EU Insolvency Regulation and the UNCITRAL Model Law - provide powerful mechanisms, but they must be deployed strategically and early. Delay is the most common and most costly mistake in distressed situations.

VLO Law Firms advises international clients on corporate restructuring and cross-border insolvency matters globally. We can assist with jurisdictional mapping, creditor negotiations, restructuring plan design, and cross-border recognition filings. To request a consultation, contact: info@vlolawfirm.com