Taking advantage of recent changes for viable businesses.
February 8th 2016, Dr. Daniel H. Brüllmann, www.arranger.ch,
After noticing in a previous paper that the improved Greek legal framework for insolvencies, which still seems dysfunctional in some aspects, and the recent recapitalizations of banks open opportunities to companies and entrepreneurs to restructure their businesses, we address some of the steps to undertake for either out-of-court or in-court restructuring to save long term survival of a viable business.
The burden of creditors to opine on the financial situation, the viability of the business and whether and how the measures shall affect the satisfaction of the stakeholders can be reduced producing clear and transparent proposals.
A viable turnaround concept with a coherent strategy and detailed measures shall thus address the crisis situations, and convince stakeholders that it can be implemented successfully to provide improvements for the stakeholders.
A neutral view is vital to find even creative measures favorable to all. An external team complementing business restructuring, legal and auditing skills and qualifications can efficiently add resources for an unbiased analysis of the situation and the implementation of urgent measures. It can also mediate convergent solutions acceptable to the parties even following unproductive negotiations.
It might sound needless to say, but creditors want to recover as much as possible of their claims and they need to be convinced that they will. Creditors may not renounce to any of their rights, but they might have to accept limitations in order to maximize the amount of repayments which they can reasonably expect.
How can we convince creditors that they can improve their situation? What have we to produce and explain? What else do we have to do, in order to establish such confidence?
As Law extensively suggests in chapter seven of the insolvency code for Reorganization, we shall produce detailed information about the financial state of the company, causes, assets, liabilities and cash position as well as any information of economic or noneconomic nature that could affect it to allow for a comparison of satisfaction of the stakeholders according to restructuring scenarios and that based on liquidation.
We shall describe corporate structural changes, organizational changes and operational programs, financing, and modifications to the rights of involved stakeholders such as conversion of claims to shares for the successful continuation of the business or its transfer and how to ensure the implementation of the proposed measures.
This has to take into consideration a safe assessment of the rights and general legal position of every creditor, depending on the class of insolvency creditors to which one belongs, or of others involved in the plan without being a creditor, which will influence any measures such as forgiveness of debt, reduction or payment in instalments of claims, waiver or restriction of a lien or security, as well as the position of the debtor in fulfilling the plan and the resulting obligations.
However, such bankruptcy procedures are complex and time consuming and one might want to avoid them.
To produce such and better alternatives thoroughly, we must be sure to:
- Examine the details of the situation and define long term strategic opportunities of the business.
- Assess the interests of all stakeholders. A broad view can inspire alternative strategic scenarios.
- Prepare solutions truly favorable to all stakeholders interests.
- Define operational restructuring measures such as strategic re-positioning, asset focusing and key management changes.
- Define control to insure implementation.
- Communicate to the stakeholders in a plain, transparent, understandable and convincing form.
Such principles apply to either out-of-court or in-court solutions such as the ratification of restructuring agreements approved with the majority of creditors. In more radical cases of Special Liquidations, where the business or viable parts of it shall be put on sale at auction, a special focus has to be put on building up the demand or an adequate and acceptable acquisition vehicle.
Should it nevertheless come to a bankruptcy procedure, the gathered information might be quite useful, not least for an eventual acquisition of assets.
In any case, a comprehensive understanding of possible results of an insolvency procedure helps us to propose and negotiate better out-of-court solutions.
Of course, implementation is not easy and confidence might initially be scarce, but viable businesses have to consider also decisive actions to assure their long term survival.
Over indebted companies cannot find any financing for their operations, as no lender in his mind is ready to share repayments with existing creditors.
A re-establishment of a sustainable debt level is thus a pre-condition to avoid continuing death of economic activity even if in better market conditions, improved liquidity, availability of equity and buyers for non-core assets improved.
Our experience shows that the extent of entanglement and personal liabilities spanning from intragroup relations to post-dated checks is often underestimated.
Problems and solutions can be sides of the same medal.
Restructuring works best if employed early on, not in despair. We thus recommended a timely action