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Paths to success after Corona

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Latest posts by Daniel Bruell­mann (see all)
Erfolg nach Corona - Success after Corona

Money is not enough to ensure suc­cess after Corona. Facil­it­ated loans and deferred pay­ments only provide liquid­ity. Suc­cess requires resi­li­ence, a busi­ness mod­el with a func­tion­ing sup­ply chain, effi­cient oper­a­tions and prof­it­able sales to cus­tom­ers a swell as a sol­id cap­it­al struc­ture. Com­pan­ies and busi­ness units well-posi­tioned in the value chain could gain mar­ket share as a res­ult of the dis­lo­ca­tion, accel­er­ated tech­no­lo­gic­al devel­op­ment and online shift of busi­ness mod­els. Oth­ers will have to repos­i­tion them­selves. Sim­pli­fic­a­tions in insolv­ency law can help also to pro­tect the healthy.

The corona pan­dem­ic has posed con­sid­er­able chal­lenges for com­pan­ies. Moreover, the end is not yet cer­tain. Short-time work allow­ances, guar­an­teed loans, indem­ni­fic­a­tions and vari­ous leg­al ease­ments, such as the tem­por­ary release from over-indebted­ness noti­fic­a­tion and the COVID 19 morator­i­um in Switzer­land, help to gain time to mit­ig­ate the con­sequences. The Swiss meas­ures are com­par­able with those in Ger­many, Aus­tria, United King­dom, Spain, etc. The massive state aid pack­ages should at least help to delay and con­tain a wave of bankruptcies.

Many SMEs will still have to fight for their exist­ence. The fact that many COVID loans have been taken up in Switzer­land, though sens­it­ive, may also indic­ate that their equity and reserves are scarce.

Some coun­tries have eased enforce­ment and insolv­ency pro­ced­ures or intro­duced for­bear­ance and morator­i­ums on cer­tain oblig­a­tions, provid­ing and increas­ing liquid­ity facil­it­ies, includ­ing as repay­able advances, short term salary allow­ances or com­pens­a­tions, or bank loans instal­ments defer­rals, tax pay­ment duties exten­sions, labour pro­vi­sions and tax dis­counts like in Greece and in part in Cyprus where Start-ups are par­tic­u­larly addressed. Such meas­ures and a massive fisc­al stim­u­lus may delay and con­tain some­how busi­ness fail­ures. How­ever, it is expec­ted that small busi­nesses might be dis­pro­por­tion­ately impaired.

In addi­tion to a strong equity base, healthy oper­at­ing mar­gins and advanced digit­al­isa­tion of busi­ness or at least digit­al read­i­ness and trans­form­a­tion are needed for suc­cess afer Corona and to ensure the resi­li­ence of companies.

Com­pan­ies that could not demon­strate such resi­li­ence dur­ing the crisis were able nev­er­the­less to secure liquid­ity through state guar­an­teed loans. This should enable them to pos­i­tion them­selves stra­tegic­ally suc­cess­fully again with­in the value chain.

If the cap­it­al struc­tures of their bal­ance sheets have also suffered ser­i­ous dam­age as a res­ult of the crisis, in Switzer­land, the Cov­id 19 Ordin­ance on Insolv­ency Law will allow com­pan­ies dur­ing half a year to restruc­ture dis­creetly in 2020  without hav­ing to report any over-indebted­ness. When determ­in­ing over-indebted­ness, the state-guar­an­teed COVID-19 loans are not to be coun­ted as debt capital.

Small and medi­um-sized enter­prises that can­not expect to restore cap­it­al require­ments by the end of 2020 and do not meet the cri­ter­ia for the ordin­ary audit require­ment have been giv­en tem­por­ary access to a sim­pli­fied, prac­tic­ally uncon­di­tion­al pro­vi­sion­al Cov­id 19 morator­i­um, which excludes wage claims and ali­mony claims, as well as the sus­pen­sion of leg­al pro­ceed­ings and the dis­sol­u­tion of per­man­ent debt rela­tion­ships, and thus has a more lim­ited effect than an ordin­ary pro­vi­sion­al debt-restruc­tur­ing morator­i­um with administrator.

The ordin­ary debt-restruc­tur­ing morator­i­um is still open and can now also be filed tem­por­ar­ily without a pro­vi­sion­al restruc­tur­ing plan and for six months.

In the con­text of reor­gan­isa­tion meas­ures, a morator­i­um can also favour the sale of a part of the com­pany as a “pre­pack”. More on this will fol­low. Or just ask.

Many over-lever­aged com­pan­ies, espe­cially in or related to hard hit hos­pit­al­ity might not be able to sur­vive and lead to a wave of dis­tressed sales.

Thus com­pan­ies have fin­an­cial restruc­tur­ing tools at their dis­pos­al that can also help them to align their bal­ance sheet struc­ture for the future. This may be suf­fi­cient for suc­cess after Corona for well-posi­tioned com­pan­ies before the crisis, if the sup­ply chain and the con­di­tion of the cus­tom­ers have not been dam­aged. How­ever, if the com­pany was not strongly posi­tioned before the crisis, mar­gins were tight, debt was high or even after the crisis, sup­pli­ers and cus­tom­ers were in dis­ar­ray, neither liquid­ity nor fin­an­cial restruc­tur­ing will suf­fice without effect­ive adjust­ments to the busi­ness mod­el. Busi­ness stra­tegic­al, struc­tur­al and oper­a­tion­al issues remain at the focus at the company.

A fin­an­cial restruc­tur­ing is of little use if it does not enable a suc­cess­ful busi­ness in the future. Now is the time to tackle the upcom­ing changes. Talk to us about them.