What needs to happen for the remedial process to be successful?
There will be more and more successful sanitation proceedings. Of course, due to the nature of remedial proceedings, the percentage of redemptions will always be higher than the approved agreements. This is normal, given the often critical financial situation of the debtor deciding on this type of procedure.
However, the restructuring environment is maturing. There is more and more understanding of the partner’s difficult situation and the real threat of bankruptcy. There is better preparation and knowledge and more experience of managers and contractors in the process. It is a pity that there are still no real sources of financing on the market. Success factors can be reduced to 5 rules. It is necessary: Involvement, Clock, Trust, Cash Resources and Team.
The key is the involvement of the debtor himself. Without a strong determination on the entrepreneurial side, restructuring is not possible. It is not the case that a manager will suddenly enter the company from outside and heal it in a miraculous way. Knowledge and experience are in the organization. The manager’s task is to bring them out and help in a new look at these resources, to help in finding the most optimal arrangement of those elements that already exist in the company. The change of organization, way of thinking, way of acting must take place inside the company. The manager can only help in directing this change.
The decision to make use of the cure must be taken in good time, at a stage when there are still sufficient resources in the company to carry out the changes. Both material and personal resources. In almost every organization there are underestimated potential sources of money. Sometimes, however, the decision to cure is taken so late that there is no longer anything to reach for. On the other hand, it is very difficult to obtain external financing during the remedial process.
Management Boards of companies and sole traders should remember that a late application exposes them to enormous personal responsibility for the company’s debts or criminal and administrative liability. Delay may also exclude the right to debt relief, which is one of the cornerstones of potential bankruptcy proceedings of natural persons.
Nevertheless, relational resources are important – once the trust of contractors or financing entities has been lost, it is very difficult to rebuild. The very opening of the remedial proceedings puts a strain on such a relationship.
The very process of implementation of the remedial proceedings must be well thought out and prepared. Many actions should be planned before submitting an application for the opening of the remedial proceedings. The commencement of actions only at the moment of the opening of proceedings by the court results in the loss of invaluable time, which is always lacking. The counter beats inexorably, and many actions can be taken by the company even before the formal start of the remedial proceedings.
In practice, we observe that gradually, after the opening, the debtor regains the credit of trust with business partners. This trust is built on the execution of current payments. It is very important not to waste this capital and take care of it by carefully designing an increase in turnover. There is nothing worse than secondary insolvency after the opening of proceedings.
Most recoveries fail due to a lack of ongoing funding for legal costs and current liabilities. The most important thing is, of course, cash, which allows to merchandise the commercial activity or pay the costs of production of goods and services. No less important are also guarantees of payment, return of advance payments or proper execution of construction works. In some proceedings, we see a willingness on the part of the owner to provide financial support, for example, by financing deliveries and extending the payment period. Sometimes some reserves are still held by the debtor’s company. However, in order for the chances of repair to be better, external suppliers of capital would have to be involved. In our opinion, it is necessary to change the legal regulations in the field of accounting and financial management by banks. It cannot be the case that granting new financing, even with full collateral, automatically requires the creation of a provision for doubtful repayment, which negatively affects the current result. In addition, it is necessary to reflect on the introduction of the possibility for the new financing party to enter the privileged position in the hierarchy of material collaterals. Entering into a collateral arrangement with a higher priority than existing creditors is justified by the fact that saving from bankruptcy pays off for all stakeholders. Of course, property rights must be protected. In the USA, it has been agreed that the collateral cannot be deprived of less than 150% of the value of the debt exposure.
Maintaining resources in the form of employees is a challenge in the process of remedial, and it is their presence and commitment that translates directly into achieving success. It is a mistake to underestimate this area. It is necessary to identify, as soon as possible (preferably still at the stage of preparing the application) the persons key to the functioning of the company and carry out corrective actions, and to take appropriate steps to ensure their cooperation in this difficult period. All employees need the attention of managers during the restructuring process. Remedial proceedings is a new and worrying situation for them, and the lack of communication causes the growth of negative emotions and fears, which could be eliminated or at least significantly reduced without significant effort. The greater involvement of employees in what is happening in the company, the greater their sense of co-responsibility for the effects of this change.
Let’s not hide it either – a rationally high level of funding allows for the involvement of good-quality specialists in the process. We are not only talking about the management team, but also about legal, analytical, negotiation, PR support, and all these resources should be experienced in restructuring processes. In larger proceedings, the accumulation of tasks in the first stage after the opening of sanitation requires the participation of a team of many people. Sometimes the legal support team itself has more than 10 people! Of course, in smaller projects large teams are not necessary, but the process cannot be based on 1-2 lawyers. Then key documents, applications or lawsuits will simply not come into being on time.