A restructuring within a company leads to a new design or organization of the company. The choice for a restructuring is often a difficult one. A restructuring can have major consequences for both the company and for various stakeholders within the company.
The Homologation Underhand Arrangement Act (WHOA) provides companies with opportunities to restructure. This law allows companies that can no longer meet their payment obligations to offer their shareholders and creditor a private agreement.
Since January 2021, these companies can ask the court to approve this agreement. The consequence of such an agreement is that all shareholders and creditors involved are bound by the agreement, even if they had not (yet) agreed to the agreement. The WHOA thus provides additional opportunities for entrepreneurs during a restructuring.
What is a (financial) restructuring?
A restructuring consists of a set of actions taken by the company to significantly change the financial and operational aspects of the business. A restructuring involves significant changes to a company's debt, operations, or structure to reduce financial losses. Often a financial restructuring is accompanied by cost savings. An example of this is laying off staff to reduce the cost of wages. Other examples of cost savings include reorganizations and selling assets that reduce the depreciation costs within the company.
In what situations is it necessary to restructure your business (financially)?
One of the most common reasons for a restructuring is that a company is under financial strain. Restructuring can also be used to prepare for a merger, sale or buyout. Third, external factors, including the presence of too much competition in the industry, can be a reason for a restructuring. The next situation that calls for a restructuring is a structurally changing sales market. Finally, a company may be restructured if part of the company is not performing well. This part of the company can be divested. When a company is in a bad economic condition it can, in the worst case, lead to bankruptcy. For this reason it is important to intervene in an appropriate manner when the situation calls for it.
What can a company do to ensure that you need to restructure unnecessarily?
Restructuring is a far-reaching process. For this reason, it is advisable to avoid unnecessary restructuring as a business owner. The first way to avoid an unnecessary restructuring is to set up a strong financial administration. When the financial records are mapped out correctly and clearly, this contributes to a more accurate picture of the company's future situation. Another way to avoid unnecessary restructuring is to carefully weigh the costs and potential consequences of investments. Rational consideration is necessary to minimize the risk of investment.
What does a financing plan look like?
A restructuring can often be seen as a crisis situation. This situation requires clarity. This clarity is created by means of an action plan with an accompanying financing plan. The purpose of a financing plan is to create clarity on the feasibility of obtaining financing and on what conditions. The financing plan offers an overview of the financial position of the company and provides insight into possible liquidity shortages. Liquidity problems can have various causes, including a lack of the right financing structure or poor asset management. The financing plan helps identify these causes and implement solutions to these problems.
What role does Florijnz play in restructuring on the one hand and in preventing unnecessary (and financially drastic) restructuring on the other?
Financial advisors are often hired to negotiate restructuring plans. A company can change its operations, processes, departments or ownership that can make the company more profitable. Florijnz guides this tumultuous and often painful process where both the internal and external structure is changed and jobs are eliminated. As an external party, Florijnz can approach each case independently and rationally to come to the best possible plan. Of course, the interests of the company are always paramount. Each process is unique and requires a customized approach. Nevertheless, the structure of a process is usually similar. It consists of the following steps:
- Preparation: after an identification of the causes, an objective will be set. This will be followed up with a preliminary book review and the identification of the key parties during your restructuring.
- Recovery plan: during this step, a liquidity forecast will be prepared. This forecast serves as the basis for a study of bottlenecks. Florijnz supports in this step in arranging a recovery plan.
- Negotiations: the third step is to conduct negotiations. These negotiations include amounts due and repayment terms. Our experience ensures that we know what bankers and lenders pay attention to during negotiations within a process.
- Finalization: after the negotiations are completed, the final documentation is prepared.
- Post-deal counseling: the counseling after the completion of the restructuring helps to increase the chances of success. During this phase, agreements made in the agreement are monitored.
What other stakeholders play a role in a restructuring?
In addition to financial advisors, there are other stakeholders involved in a restructuring. The first group consists of lawyers. The role of lawyers varies from process to process. After all, they work for both creditors and debtors. Lawyers negotiate agreements that enable the debtor to pay off debt without becoming insolvent. The second group of stakeholders in a restructuring consists of employees. One of the possible consequences of a restructuring is a reorganization. It is not allowed to decide which employees will be dismissed. Lawyers make it clear which employees are eligible for dismissal. Other stakeholders with their own interests in a restructuring process are shareholders, customers and suppliers.
Getting started with restructuring
The complexity of a restructuring process requires the use of specialists who can guide this process in the best possible way. The structure and activities of a company affect stakeholders both inside and outside the organization. The underlying reason for a restructuring can vary from internal reasons such as mismanagement to external reasons such as the consequences of the COVID-19 pandemic. It is important for the entrepreneur to intervene in time in order to avoid the need for further measures in the future within the company. Would you like to know more about the role of a corporate finance advisor during a restructuring? You can contact us using the form below or using our contact details on the team page under the heading 'About us'. We will be happy to discuss your personal situation with you.