Refinancing - How to Restructure Business Finance and Strengthen Cash Flow

What Refinancing Means for Businesses and Why it is Used

Refinancing is the process of replacing existing debt or funding arrangements with new finance, whether from the same lender or a new one. It is commonly used to improve cash flow, reduce borrowing costs, extend repayment terms, release security, or align funding with a company’s current and future needs.

Businesses refinance for many reasons. These include responding to growth, addressing financial pressure, correcting poorly structured historic borrowing, preparing for a sale or reorganisation, or dealing with lender concerns following covenant breaches or underperformance. Refinancing can be a proactive strategic tool or a necessary response to changing circumstances. It may also involve revising or releasing guarantees and security interests in accordance with Part 25 of the Companies Act 2006, which governs the registration of charges.

While refinancing is often viewed as a commercial or banking exercise, it has significant legal, tax, and structural implications. Poorly managed refinancing can trigger defaults, invalidate security, or restrict future flexibility. Proper legal advice ensures refinancing strengthens the business rather than creating hidden risk.

When Refinancing Is the Right Option

Common commercial reasons to refinance
Refinancing is frequently appropriate in situations such as:

• Improving cash flow, by extending loan terms, reducing interest rates, or consolidating multiple facilities into a single structure.
  
• Replacing expensive or restrictive debt, particularly where legacy facilities no longer reflect the company’s risk profile or performance.
  
• Responding to covenant breaches or lender pressure, where refinancing provides a reset and avoids enforcement.
  
• Funding growth or acquisition, where additional capital is required on terms that align with expansion plans.
  
• Preparing for sale, investment, or restructuring, where clean and sustainable funding arrangements improve valuation and transaction certainty.
  

In each case, refinancing should be aligned with the company’s wider strategy, not treated as a short-term fix. Integration with tax and accounting advice ensures that revised terms remain efficient and compliant across the group.

When refinancing may not be appropriate
Refinancing may not be the right solution where:

• The underlying business model is no longer viable.
  
• Debt levels are unsustainable without fundamental restructuring.
  
• Lenders are unwilling to provide ongoing support.
  
• Refinancing would simply defer, rather than resolve, deeper financial issues.
  

Early assessment is essential to determine whether refinancing alone is sufficient or whether broader restructuring options should be considered.

How Business Refinancing Works in Practice

Understanding the basic structure
Refinancing typically involves one or more of the following:

• Repayment of existing facilities and entry into new loan agreements.
  
• Amendment and restatement of existing finance documents.
  
• Release and re-granting of security.
  
• Changes to guarantors, borrowers, or group structure.
  

Security documents must be properly perfected and registered within 21 days under section 859A of the Companies Act 2006 to preserve priority.

Single-lender vs multi-lender refinancings
Some refinancings involve a single bank or lender, while others involve syndicates, private equity, or alternative finance providers. Multi-lender refinancings often require intercreditor agreements to govern priority, enforcement, and payment waterfalls.

In cross-border financings, compliance with the Rome I Regulation and the UK Private International Law (Implementation of Agreements) Act 2020 may affect governing-law choices and enforcement rights. Understanding these dynamics is critical to protecting the company’s position and future flexibility.

Legal Framework and Key Documentation

Core finance documents
A refinancing will usually involve:

• Facility agreements setting out the terms of borrowing.
  
• Security documents, such as debentures, charges, and mortgages. Each security document should be filed at Companies House using Form MR01 within 21 days of execution.
  
• Guarantees from group companies or shareholders.
  
• Intercreditor agreements, where multiple lenders are involved.
  

Each document must be carefully reviewed and negotiated to ensure consistency, enforceability, and alignment with commercial objectives.

Company law considerations
Refinancing must comply with the Companies Act 2006, including:

• Directors’ authority to enter into finance arrangements.
  
• Financial assistance restrictions where shares are involved, particularly under sections 677 to 683.
  
• Proper execution and registration of security at Companies House.
  

Failure to comply with statutory requirements can render security ineffective or expose directors to personal risk.

Refinancing and Directors’ Duties

Director responsibilities during refinancing
Directors must comply with their duties under sections 171 to 177 of the Companies Act 2006 when approving a refinancing. These include acting in the best interests of the company, exercising reasonable care and skill, and avoiding conflicts of interest.

Where a company is under financial pressure, directors must also consider creditor interests. Refinancing decisions that worsen the position of creditors or unfairly prefer one lender over another may be challenged. Key provisions include sections 239 and 245 of the Insolvency Act 1986, which address preferences and invalid floating-charge securities created shortly before insolvency.

Insolvency considerations
If insolvency is a real risk, refinancing must be approached with particular care. Proper structuring, contemporaneous advice, and detailed records help mitigate the risk of later challenge by a liquidator or administrator.

Tax Considerations in Refinancing

Corporation tax implications
Refinancing can have corporation tax consequences, including the treatment of interest deductions, loan relationship credits or debits, release or modification of debt, and break costs. The corporation tax treatment is governed primarily by the loan relationship rules in Part 5 of the Corporation Tax Act 2009 and HMRC’s Corporate Finance Manual.

Early tax input ensures that refinancing does not create unintended tax exposure or inefficiencies.

Withholding tax and cross-border issues
Where lenders are overseas or interest is paid cross-border, withholding tax issues may arise. Treaty relief, exemptions, or gross-up provisions often need to be considered and addressed in the documentation. The relevant legislation includes sections 874 to 875 of the Income Tax Act 2007.

Refinancing as Part of Wider Reorganisations

Interaction with restructurings and demergers
Refinancing is frequently carried out alongside capital reductions, debt for equity swaps, share buybacks, demergers, and wider group reorganisations. Sequencing is critical to ensure each step is legally effective and commercially aligned.

Existing lenders’ consent may be required before other restructuring steps, such as capital reductions or share reorganisations, can proceed. Early engagement avoids delay and preserves negotiating leverage.

Preparing for investment or exit
Clean, well-structured financing arrangements are often a prerequisite for investment or sale. Refinancing can remove historic complexities, release unnecessary security, or reposition debt to support a transaction.

Common Risks in Refinancing

Restrictive covenants and loss of flexibility
New facilities may include tighter covenants, enhanced information rights, or consent requirements. While acceptable in the short term, these can constrain future strategy if not carefully negotiated.

Security and guarantee overreach
Lenders may seek extensive security or guarantees that expose group companies or directors to unnecessary risk. Clear advice helps balance lender requirements with protection of the wider group.

Hidden defaults or technical breaches
Refinancing can inadvertently trigger defaults under other agreements if cross-default clauses or change-of-control provisions are overlooked.

Why Jonathan Lea Network Is Trusted for Refinancing

Deep finance and restructuring expertise: Jonathan Lea Network advises on refinancing across the full spectrum, from routine renewals to complex distressed refinancings. We understand how finance documents interact with corporate structures and restructuring objectives.

Commercially focused advice: We focus on what the refinancing needs to achieve for the business, not just legal compliance. Our advice is practical, proactive, and aligned with commercial realities.

Partner-led, coordinated approach: Clients work directly with experienced lawyers who coordinate with tax advisers, lenders, and other stakeholders to ensure a smooth and efficient process.

Transparency and value for money: We provide clear scoping, cost visibility, and realistic timelines, helping clients manage refinancing without unnecessary complexity.

Common Client Concerns We Help Address

Is refinancing a sign of financial trouble?
Not necessarily. Many healthy businesses refinance proactively to improve terms or support growth.

Will lenders require personal guarantees?
This depends on risk profile and negotiation. We advise on when guarantees are appropriate and how to limit exposure.

Can refinancing increase insolvency risk?
Poorly structured refinancing can increase risk. We help ensure refinancing strengthens, rather than undermines, the company’s position.

How long does refinancing take?
Timelines vary depending on complexity, lender requirements, and whether restructuring is involved. We provide clarity at the outset.

Take the Next Step – Speak to Refinancing Specialists

Restructure finance with confidence and control
Refinancing can be a powerful tool to strengthen cash flow, reduce risk, and support future growth. Our UK refinancing lawyers advise on all aspects of corporate finance restructuring, ensuring documents are compliant, enforceable, and aligned with your commercial goals.

Jonathan Lea Network advises businesses, directors, and shareholders on refinancing with clarity, technical precision, and commercial insight. We manage the process from initial review through to completion and ongoing support.

To discuss whether refinancing is right for your business call us on +44 (0)1444 708 640 , or email us to arrange a confidential discussion with one of our corporate restructuring specialists.

This overview is for general information only and does not constitute legal or tax advice.