Paths to 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.