Future threats can be mitigated and potentially avoided through proactive restructuring, and it is important to continually monitor the viability of a business, explains Niten Chauhan, partner at Harold Benjamin
‘Change is the law of life and those who look only to the past or present are certain to miss the future,’ such were the words of the late US president John F Kennedy.
If only this way of thinking had become the norm. Far too often, however, businesses are reactive rather than proactive, and nowhere is this more evident than in the world of restructuring and insolvency.
Despite the lessons that recent global crises should have taught us, the culture in business is unfortunately still to respond to threats rather than get ahead.
Some business owners still feel there is a stigma that asking for help is a sign of weakness and for them (and others) the term ‘restructuring’ carries all sorts of negative connotations. It immediately makes them think the worst and words such as insolvency, liquidation and dissolution come to mind conjuring up images of business collapse and the end of the life of a company.
Of course, that is human nature but there is no certainty that the good times will last forever. We saw just how unpredictable Covid. How could anyone have predicted a global health pandemic of such magnitude? Reacting seemed like the only option but now with the growing costs crisis, soaring inflation and rising interest rates these should be an early warning for businesses to plan ahead and seek advice early.
Whilst it is a truism that not every eventuality can be insured against, future threats can be mitigated and potentially avoided through proactive restructuring. In fact, businesses should be looking to restructure even when they are in rude health as there are plenty of options for distressed businesses that are not all doom and gloom, and businesses must explore these as a matter of course and not simply one of necessity.
Even during periods of strong performance and growth, companies should be looking at their processes, their finances and the markets within which they operate in order to better anticipate risks and plan for the future to not only maintain their position but ultimately to survive.
Whilst that might be considered a pessimistic view, recent events have demonstrated that the worst can happen all too quickly, without warning and to even those considered giants of their industry.
As such, we have seen many high-street names disappear in recent times, but many have survived as a result of solvent restructuring processes such as schemes of arrangement and the new restructuring plan introduced by the Corporate Insolvency and Governance Act 2020 (CIGA).
However, these can be expensive and often seen as options only for larger organisations whereas smaller business still look to a more traditional restructuring process such as a company voluntary arrangement (CVA) with its creditors.
Similarly, administration can afford a business the benefit of a moratorium giving it vital breathing space until an administrator is appointed for the purpose of rescuing the company, if possible.
In fact, if companies are proactive then the decisions and actions of business owners need not necessarily be dictated by the cost and expense of a formal plan or procedure. An early and honest conversation with a lender could enable parties to renegotiate loan facilities, secure better terms and explore other types of refinancing to enable them to reduce monthly payments and potentially have the money to reinvest back into the business instead.
For example, parties may be able to agree to a form of debt consolidation or rescheduling of the debt with maturity dates being extended. After all, even lenders have the commercial sense to want to improve their chances of being repaid rather than having to deal with an insolvent company.
These are just a couple of examples of the types of restructuring that should be commonplace for any business, in any sector. These methods can strengthen a company’s position rather than just save it from failure and therefore, should be evaluated regularly.
Whether companies have an in-house capability for assessing these threats, work with an external consultant or approach a trusted professional, is for them to decide. But they must take a more proactive stance and be brave enough to ask for help before it is too late as the current economic outlooks appears to be that things are only going to get worse before they get better.
If you have questions on the effect of administration on the workforce, visit BrAInbox today where you can find answers to questions like Does TUPE apply to insolvency proceedings?
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