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.
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.