Corporate Recovery Services
 

Imprimer General engagement context

 

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The risk of failure is inherent to all businesses, even the most prestigious, whatever their size and line of business.

Whether due to a simple setback or a deep-rooted complex crisis, the cause of difficulties can be of various origins:

Internal

  • Organisation and management issues
  • Ineffective marketing or lack of anticipation
  • Weight of financial debt
  • Lack of financial visibility
  • Etc.

And/or external

  • Intensity of competition
  • Pressure on prices
  • Loss of a major client
  • Rise in the cost of raw materials
  • Etc.

Like a spreading illness, the difficulties transform the balance of the original business model, with repercussions on all stakeholders and the appearance of specific symptoms:

  • A deteriorating cash situation
  • Loss of third party confidence and sense of failure in management
  • Business is paralysed, focused on the crisis, and incapable of taking an objective view of the situation
  • A refusal to face the facts, which stops the business from taking timely measures ('things will be better tomorrow')
  • Fear of the courts (commercial court,  bankruptcy trustee, etc.)

 

 

If the company director does not react early enough to stop the decline, insolvency becomes unavoidable (1).

Consequently, the primary success factor for turning a distressed business around is its capacity to react at the first signs of failure, before the situation becomes irreversible: 

  •  Promote prevention and anticipation, rather than "recovery" 
  •  Promote negotiation with creditors as well as consensus, rather than court proceedings

(1) Any debtor must file for bankruptcy within 45 days of the date on which it becomes insolvent

 

In the face of the difficulties threatening the company, timely action by management means that they can consider various possibilities and choose the best option while minimising the risks:

 

 

Dealing with company difficulties is a particular form of risk management, depending on the remaining timeframe, possible options, and available resources:

Distressed small and mid-sized companies or a distressed group: how to manage the situation?

  • If the company is in difficulty without being insolvent
    • Does it have the timeframe and means to implement an operational restructuring plan?
    • Is financial restructuring necessary to ensure the success of the recovery plan?
    • Is a pre-bankruptcy proceeding still possible or are safeguarding proceedings necessary?
    • Is it possible to implement a disposal/association process of the business in its current state?
    • If that is the case, how to find business acquirers capable of intervening in such a context?
    • What are the risks for the various stakeholders?
    • Etc.
  • If the company is insolvent
    • How to file for bankruptcy and obtain an observation period?
    • Under what conditions is a continuation plan conceivable?
    • Is it preferable to look for acquirers in order to favour turnaround by selling?
    • What are the risks for the various stakeholders?
    • Etc.

Distressed subsidiary within a solvent group, distressed investment within a private equity fund: what are the possible options?

  • If the company is facing difficulties without being insolvent
    • Does the shareholder want to implement the operational and/or financial restructuring of its subsidiary or its investment?
    • Is the activity in question within the perimeter of core activities, or would it be preferable to dispose of it?
    • If such is the case, how to find acquirers capable of intervening in such a context?
    • Is an out-of-court liquidation the best solution for "gently winding-down" a distressed business?
    • What are the risks and the financial outcome of the various options?
    • Etc.
  • If the company is insolvent
    • Will the shareholder's reputation be damaged by the liquidation of its subsidiary?
    • Under what conditions is a continuation plan conceivable?
    • Is it preferable to look for acquirers in order to favour turnaround by selling?
    • What are the risks for the various stakeholders, including the shareholder?
    • Etc.

How to react when faced with the difficulties of a strategic client or supplier?

  • Is it a matter of temporary cash problems or a deep-rooted crisis?
  • Under what conditions is it possible to maintain commercial relationships with the client or supplier?
  • Where did the problems come from?
  • What are the client's or the supplier's market prospects?
  • Has management developed a relevant recovery package?
  • Have the resources necessary to finance the package been acquired?
  • What is the actual financial situation?
  • Is there an economic interest in taking advantage of the situation by acquiring the client or supplier?
  • Etc.

The takeover of a distressed business by a corporation or a private equity fund: what are the challenges and the risks?

  • The takeover of a distressed business can be a real investment opportunity, provided the following elements exist:
    • A potential for long-run profitability
    • Assets: brands, patents, know-how, key people, contracts, production plant, etc.
    • Market prospects
    • Possible synergies
  • Control of timing remains the primary success factor, in order to access 'real information' within a limited timeframe and a deteriorated context
  • Solvent target:
    • What is the actual economic and financial situation of the target?
    • Where did the difficulties come from?
    • Has a recovery package been considered by management in-place?
    • What are the financial requirements in order to ensure turnaround?
    • What are the schedule and the transaction process?
    • What are the risks?
    • How to value the target?
    • Etc.
  • Insolvent target:
    • Where did the difficulties come from? And what are the prospects for recovery?
    • Should a continuation plan be put forward or a transfer plan?
    • What are the necessary financial requirements?
    • How to manage interaction with authorities during the proceedings?
    • What are the particularities of turnaround solutions through the courts?
    • How to value the target?
    • Will confidence be restored?
    • Etc.

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