Want FREE Templates on Digital Transformation? Download our FREE compilation of 50+ slides. This is an exclusive promotion being run on LinkedIn.

Flevy Management Insights Q&A
What are the legal considerations for companies undergoing restructuring in different jurisdictions?

This article provides a detailed response to: What are the legal considerations for companies undergoing restructuring in different jurisdictions? For a comprehensive understanding of Restructuring, we also include relevant case studies for further reading and links to Restructuring best practice resources.

TLDR Organizations restructuring across jurisdictions must navigate complex legal, Employment Law, Corporate Law and Governance, and Financial and Tax considerations, requiring strategic compliance and planning.

Reading time: 4 minutes

Organizations undergoing restructuring face a complex web of legal considerations that vary significantly across different jurisdictions. These considerations are critical for ensuring compliance, minimizing legal risks, and facilitating a smoother transition during the restructuring process. Understanding the legal landscape is essential for executives and advisors alike, as it influences strategic decisions and operational changes within the organization.

Employment Law Considerations

One of the primary legal considerations during restructuring involves employment law. This includes laws related to layoffs, severance, and employee rights. In the United States, for instance, the Worker Adjustment and Retraining Notification (WARN) Act requires organizations with 100 or more employees to provide 60 days' notice in advance of plant closings and mass layoffs. Failure to comply can result in penalties and liability to affected employees. In contrast, European countries often have more stringent requirements. For example, in Germany, works councils must be consulted before any layoffs can occur, and in France, employers must consider social criteria such as family situation and length of service when determining whom to lay off.

Organizations must also consider the implications of severance packages and potential claims for unfair dismissal. In jurisdictions with strong labor protections, such as many European countries, navigating these laws requires careful planning and negotiation. Consulting firms like McKinsey and Deloitte often advise on best practices for managing these processes, emphasizing the importance of clear communication, fair treatment of employees, and adherence to local laws to mitigate risks and avoid litigation.

Real-world examples of companies managing these considerations effectively include Nokia's restructuring in 2011, where the company engaged in extensive negotiations with employee representatives in multiple countries to ensure compliance with local employment laws while implementing significant layoffs as part of its strategic reorientation towards network equipment and services.

Learn more about Best Practices

Are you familiar with Flevy? We are you shortcut to immediate value.
Flevy provides business best practices—the same as those produced by top-tier consulting firms and used by Fortune 100 companies. Our best practice business frameworks, financial models, and templates are of the same caliber as those produced by top-tier management consulting firms, like McKinsey, BCG, Bain, Deloitte, and Accenture. Most were developed by seasoned executives and consultants with 20+ years of experience.

Trusted by over 10,000+ Client Organizations
Since 2012, we have provided best practices to over 10,000 businesses and organizations of all sizes, from startups and small businesses to the Fortune 100, in over 130 countries.
AT&T GE Cisco Intel IBM Coke Dell Toyota HP Nike Samsung Microsoft Astrazeneca JP Morgan KPMG Walgreens Walmart 3M Kaiser Oracle SAP Google E&Y Volvo Bosch Merck Fedex Shell Amgen Eli Lilly Roche AIG Abbott Amazon PwC T-Mobile Broadcom Bayer Pearson Titleist ConEd Pfizer NTT Data Schwab

Corporate Law and Governance

Restructuring also involves significant corporate law and governance considerations. These include compliance with regulations governing corporate restructuring, mergers, and acquisitions, as well as the rights and obligations of shareholders, directors, and other stakeholders. In the United States, for instance, the Delaware General Corporation Law provides a framework for corporate restructuring, including mergers and acquisitions, which requires board approval, and in some cases, shareholder approval. Similarly, in the United Kingdom, the Companies Act 2006 sets out the legal framework for corporate governance and restructuring activities.

Organizations must ensure that their restructuring plans are in compliance with these laws and that all necessary approvals are obtained. This may involve complex negotiations with shareholders, particularly in cases where the restructuring involves significant changes to shareholder rights or the dilution of existing shares. Consulting firms like EY and PwC often provide guidance on navigating these legal requirements, emphasizing the importance of transparency, due diligence, and strategic communication with stakeholders.

An example of a company navigating these challenges is Hewlett-Packard's split into HP Inc. and Hewlett Packard Enterprise in 2015. This complex restructuring required careful legal planning and compliance with corporate law requirements, including securing approval from shareholders and meeting regulatory requirements in multiple jurisdictions.

Learn more about Due Diligence Corporate Governance

Financial and Tax Considerations

Financial and tax considerations are also paramount during restructuring. Organizations must navigate the tax implications of restructuring activities, which can vary widely between jurisdictions. For example, in the United States, the Internal Revenue Service (IRS) has specific regulations governing the tax treatment of corporate reorganizations, including tax-free reorganizations under Section 368. In contrast, European jurisdictions may have different rules regarding the tax treatment of asset transfers and losses incurred during restructuring.

Additionally, organizations must consider the impact of restructuring on their financial statements and reporting obligations. This includes the treatment of restructuring costs, asset impairments, and any changes in the valuation of assets and liabilities. Consulting firms like KPMG and Deloitte offer expertise in navigating these complex financial and tax landscapes, advising on strategies to minimize tax liabilities and ensure compliance with financial reporting standards.

A notable example of effective financial and tax planning during restructuring is the merger of Glaxo Wellcome and SmithKline Beecham to form GlaxoSmithKline in 2000. This merger involved extensive tax planning and financial restructuring to ensure the combined entity could achieve operational efficiencies while minimizing tax liabilities across multiple jurisdictions.

Organizations undergoing restructuring must carefully navigate the legal, employment, corporate governance, financial, and tax considerations in their respective jurisdictions. The complexity of these considerations requires a strategic approach, informed by expert advice and thorough planning, to ensure compliance, minimize risk, and achieve the desired outcomes of the restructuring process.

Best Practices in Restructuring

Here are best practices relevant to Restructuring from the Flevy Marketplace. View all our Restructuring materials here.

Did you know?
The average daily rate of a McKinsey consultant is $6,625 (not including expenses). The average price of a Flevy document is $65.

Explore all of our best practices in: Restructuring

Restructuring Case Studies

For a practical understanding of Restructuring, take a look at these case studies.

Operational Excellence Strategy for Regional Hospital in Healthcare

Scenario: A regional hospital is undergoing restructuring to address a 20% increase in patient wait times and a 15% decrease in patient satisfaction scores.

Read Full Case Study

Cloud Integration Strategy for IT Services Firm in North America

Scenario: A prominent IT services firm based in North America is at a crucial juncture requiring a strategic reorganization to address its stagnating growth and declining market share.

Read Full Case Study

Restructuring for a Multi-Billion Dollar Technology Company

Scenario: A multinational technology company, with a diverse portfolio of products and services, is grappling with a bloated organizational structure and inefficiencies.

Read Full Case Study

Organizational Reorganization for E-commerce Retailer in Consumer Electronics

Scenario: The organization in question operates within the highly competitive consumer electronics e-commerce space.

Read Full Case Study

Telecom Firm Reorganization for Market Leadership in Broadband Services

Scenario: The organization is a prominent broadband services provider in the telecom sector facing market saturation and increased competition.

Read Full Case Study

Reorganization Strategy for Defense Contractor in Aerospace Sector

Scenario: The organization is a defense contractor specializing in aerospace technology facing operational challenges due to a recent merger that has doubled its workforce and integrated disparate processes.

Read Full Case Study

Explore all Flevy Management Case Studies

Related Questions

Here are our additional questions you may be interested in.

In what ways can artificial intelligence and machine learning be leveraged to streamline the reorganization process?
AI and ML can revolutionize business reorganization by enhancing decision-making with predictive analytics, streamlining processes through automation, and facilitating employee engagement and change management, thereby making reorganizations more efficient, data-driven, and adaptable. [Read full explanation]
How is the rise of remote and hybrid work models impacting reorganization strategies?
The rise of remote and hybrid work models is reshaping reorganization strategies, necessitating changes in Organizational Structures, Talent Management, and Operational Efficiency and Innovation, guided by insights from leading consulting firms and market research. [Read full explanation]
What are the implications of blockchain technology on organizational structure and reorganization efforts?
Blockchain technology promotes Decentralization, enhances Collaboration and Innovation, and improves Risk Management and Compliance, driving organizations towards flatter, more agile structures and necessitating new skills and roles. [Read full explanation]
How do you measure the success of a turnaround strategy, and what key performance indicators (KPIs) should companies focus on?
Success of a turnaround strategy is gauged through Financial, Operational, and Market-Driven KPIs like Revenue Growth, Profit Margins, Cash Flow, Inventory Turnover, Customer Satisfaction, and Market Share, aligning with strategic goals for sustainable growth. [Read full explanation]
What impact do emerging technologies like AI and blockchain have on the efficiency and effectiveness of turnaround strategies?
Emerging technologies such as AI and Blockchain significantly enhance Turnaround Strategies by improving efficiency, effectiveness, and stakeholder trust, fundamentally changing corporate restructuring. [Read full explanation]
In what ways can restructuring contribute to a company's sustainability and environmental goals?
Restructuring enhances Sustainability and Environmental Goals through Operational Efficiency, Strategic Planning, and fostering a Culture of Sustainability, aligning with global eco-friendly practices for business resilience and growth. [Read full explanation]

Source: Executive Q&A: Restructuring Questions, Flevy Management Insights, 2024

Flevy is the world's largest knowledge base of best practices.

Leverage the Experience of Experts.

Find documents of the same caliber as those used by top-tier consulting firms, like McKinsey, BCG, Bain, Deloitte, Accenture.

Download Immediately and Use.

Our PowerPoint presentations, Excel workbooks, and Word documents are completely customizable, including rebrandable.

Save Time, Effort, and Money.

Save yourself and your employees countless hours. Use that time to work on more value-added and fulfilling activities.

Read Customer Testimonials

Download our FREE Strategy & Transformation Framework Templates

Download our free compilation of 50+ Strategy & Transformation slides and templates. Frameworks include McKinsey 7-S Strategy Model, Balanced Scorecard, Disruptive Innovation, BCG Experience Curve, and many more.