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External support to restructure companies in Greece

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Taking advantage of recent changes for viable businesses.

Feb­ru­ary 8th 2016, Dr. Daniel H. Brüll­mann,,

After noti­cing in a pre­vi­ous paper that the improved Greek leg­al frame­work for insolv­en­cies, which still seems dys­func­tion­al in some aspects, and the recent recap­it­al­iz­a­tion 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