Securing the future through restructuring
Securing the future through restructuring
Why companies can only overcome the crisis with a sound concept
A young generation is taking on responsibility at a time when a mix of geopolitical challenges (wars in Ukraine and the Middle East, disrupted supply chains), increased energy costs, high price rises, increased financing costs and growing cybercrime are impacting companies. Added to this are the long-term megatrends, such as digitalization, connectivity, demographic change and urbanization, which are influencing companies' business models.In order to meet the trends and challenges of our time, company decision-makers should systematically look at ways to adapt or further transform their business model. All too often, (disruptive) trends are not recognized or perceived in time. If trends are recognized, they are often significantly underestimated at the beginning. If the timely transformation is missed, the worst that can happen is a corporate crisis. Comprehensive restructuring measures are then required to lead companies into the future. But what considerations need to be made beforehand and what procedures are possible as part of a restructuring?
Putting the business model to the test in good time
Assessing the business model and the need for adjustment first requires a thorough understanding of the development and the causes that have led to the previous development. However, these analyses are often only carried out when a corporate crisis is already clearly emerging. Different types of crisis such as stakeholder, strategy, product and sales crises as well as profit and liquidity crises through to insolvency are characteristic. At the beginning of a stakeholder crisis, the signs are still very difficult to perceive - but the scope for action is still the greatest. At the end, the signs can no longer be denied, but the room for maneuver is the smallest. It is therefore worth taking action at an early stage - this still opens up a great deal of room for maneuver and safeguards the value of the company.
StaRUG requires early crisis detection
This understanding is also the basis for the provisions of the German Corporate Stabilization and Restructuring Act (StaRUG), which came into force in 2021. It obliges managers to implement suitable instruments for early crisis detection in the company and to continuously monitor business development in order to ensure an early response.The realignment must regularly be based on a comprehensive corporate concept in order to ensure its sustainability. This is usually also referred to as a restructuring concept if the crisis is already at an advanced stage.
Long-term success through a comprehensive restructuring concept
A comprehensive restructuring concept must address the problems of all stages of the crisis in order to enable a well-founded assessment of the company's ability to restructure. This is because unidentified or unresolved causes of the crisis can continue to have an impact and lead to apparent successes in overcoming crises such as success and liquidity crises being only temporary, without guaranteeing long-term restructuring. It is therefore crucial to analyze the future viability of the business model in detail. This analysis forms the basis for long-term restructuring success and is crucial for restoring the company's stability and competitiveness. The importance of the restructuring concept for stakeholders, such as shareholders, investors and banks, lies in the objectification of the decision-making basis and in ensuring that only promising restructurings are supported. A core requirement of the financing banks in particular is that the restructuring concept must take into account the relevant requirements of BGH case law.
Options for financing a restructuring process
If the business model is also viable in the future (possibly after adjustments), those responsible must determine the capital requirements for this as part of the restructuring. Comprehensive corporate planning with sensitivity analyses makes it possible to identify potential risks and opportunities with regard to future capital requirements, which then enables investors to make a more informed assessment of future capital requirements and facilitates decision-making thanks to the transparency created.
In such cases, the spin-off and sale of non-core or non-performing business units can offer various financing options in addition to the usual restructuring contributions from equity providers:
- Reducing existing debt
- Increasing the profitability of the core business
- Generating sales proceeds
If these options do not exist and negotiations with the stakeholders involved (including shareholders, secured and unsecured creditors and employees) do not produce the contributions required for sustainable restructuring, the management is required to plan and implement the negotiations with court support (StaRUG) or a court-ordered restructuring (InsO). With the StaRUG, the legislator created a procedure in 2021 to enable pre-insolvency restructuring under certain conditions, even against the will of opposing creditors. The core element is the restructuring plan.
Restructuring through insolvency proceedings
If the plan threatens to fail because the required majorities for the restructuring cannot be achieved or because the company has become insolvent in the meantime, there is the option of continuing the restructuring solution with the means of the Insolvency Code. Ultimately, the objectives of the restructuring plan can be enforced by means of the Insolvency Code as part of insolvency proceedings under self-administration, as all asset claims against the company become insolvency claims that only have to be satisfied proportionately if insolvency proceedings are opened. These effects also include pension claims and other claims arising from employment relationships, which are not negotiable under the StaRUG, for example. In the case of insolvency under self-administration, the management remains in office and negotiates with the creditors in accordance with the provisions of the Insolvency Code on the structure of the company's continued existence. An insolvency plan allows the rights of creditors to be structured more comprehensively than under the above-mentioned restructuring plan according to StaRUG and the majority requirements for approval are also more favorable for the company.