Things to consider if your business has finance or is looking for finance or is looking at a debt restructuring exercise

COVID-19 has resulted in significant business disruption, and many companies are considering some form of restructuring, including their debt. When thinking about your debt structure, including the opportunity to potentially access new funding, keep these points in mind (whether or not you are looking for funding now).

  • Check your borrowing documents to ensure you are complying with any disclosure covenants, especially in relation to material financial change
  • Check existing borrowing documents to identify whether there are any restrictive covenants on future borrowing or that require the consent of existing lenders before incurring further indebtedness
  • Review the documentation for your current loan facilities and ensure that you are complying with any requirements such that you are not in default. If you are in default of any provision of the loan agreement, take legal advice. An event of default will usually give the lender a right to take steps to recover its debt, including enforcing any security interest
  • Review any financial covenants which may affect your borrowing capacity. Such financial covenants could include (among others) maintenance of thresholds for the following ratios:
    • Debt to EBITDA
    • Debt to Equity
    • Debt to Assets
    • Many more financial covenants might be applicable to your loan
  • Contact your financial institution and ensure you are able to have quick access to your funds. If your funds are stored in a term deposit, you will be required to wait until those funds have matured. Some financial institutions require borrowers to wait more than 31 days for early withdrawal
  • It is important to consider whether your lender may require you to have drawn down all available funds under all your other loans before advancing you further funds
  • Try to avoid fees associated with early repayment of loans, including utilisation fees
  • Review the right of set-off provisions in your loan facility, and make sure they are only used where there is an outstanding default on your loan
  • If your loan facility has a clause related to a material adverse change provision, it is important that you consider in what circumstances a right to terminate arises and what type of event must occur to trigger this provision
  • Do you actually need further cash funds? If you do not, be careful not to create a perception that you are in financial difficulties. Consider your other options too, such as liquidating redundant assets
  • At times like this, the criteria for big banks to lend can often be too stringent. Consider non-bank lenders
  • Do not forget to consider safe harbour if you think the company may become insolvent, and also voluntary administration
  • It is important to seek legal and financial advice in relation to your options during these uncertain times

Further Information

For more information about debt restructuring, contact Trevor Withane:

Further Information

For more information about personal guarantees, banking litigation and dispute resolution contact Trevor Withane


Ironbridge Legal’s communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication.