Knowledge base item

Restructuring: The transformation of your company to survive less prosperous times

A transformation of your organisation

When a company is in financial trouble - or at risk of being in financial trouble - it is time for action. Major changes are necessary and the (financial) structure of companies needs to be reassessed. Do you recognize yourself in this situation? Then financial restructuring might be a good solution. A transformation in such a way that the strategy of your company is geared to survive this crisis.


What is a restructuring?

This forced transformation of your company is also called a restructuring. Restructurings are aimed at avoiding further bankruptcy in the short term and at improving the value-creating capacity in the long term.

What is important in a restructuring?

Several things are important in a restructuring:

Keeping the company solvent is very important in the restructuring process. Being solvent means that the value of the assets always remain greater than the debts. The solvency will therefore have to be monitored constantly. This can be done by constantly providing insight with a visual report, for example by means of an automated dashboard.

In addition, you will need to ensure that the well-run business units continue to exist, while minimizing the risks of weak business units. Given the changes in the economy, it is wise to minimize potential risks by spreading risk.

You will need to focus on the future and start implementing long-term solutions. These include a wide range of possible adjustments, including reducing headcount, improving working capital or adjustments around cash flow.

If your company has several shareholders, it is important that you take these measures as soon as possible. Shareholders will need to continue to have confidence in the company.

Several restructuring scenarios are possible. What scenarios are there?

When a company has too many debts, or there is a liquidity shortage, bankruptcy can be avoided by consulting with your bank and other creditors in time. Our experience shows that by making a solid plan which shows continuity after restructuring, the chance of acceptance by banks and other creditors is high, provided it is done properly. All creditors, including the banks, will then receive a proposal for a payment arrangement under which they will be released from a part of their claim.

One of the best known ways to restructure a company is the share merger. This is better known as a 'takeover'. In a share merger, the shares of one company are sold to another company for a sum of money. In this way, the buyer acquires control of the company. These control rights can be particularly valuable if you want to transfer the policy and vision of your company to the new owner. The costs of a share merger are often low, because an offer is made for all the shares and not just for a few business units.

A legal demerger involves two different types of demerger. A pure demerger and a split-off. In the case of a pure demerger, the old company disappears and at least two new companies are created. The pure demerger is often applied when there is disagreement among the shareholders within the company. There are then created from one company two companies, each with its own vision.

There may also be a so-called split-off. In this case, the demerging legal entity continues to exist and part of the capital is transferred to the new company. By means of a demerger it is then possible to transfer a poorly performing business unit to another company. In this way, the own company can continue with the remaining business units.

In an assets/liabilities transaction, part of the business is transferred to another company. Often successful business units are transferred separately to the company concerned, but the less attractive parts (such as the debts) remain in the original company. This is also known as cherry-picking.

An assets/liabilities transaction can be attractive for SMEs with a limited number of different business units. In the case of a larger company with many different business units, an assets/liabilities transaction is less suitable, since a separate deed has to be drawn up for each transfer.

The last method of restructuring is a debt for equity swap. Here the debts of the company are converted into equity for the lenders. In this way liquidity is created within the company and the lender is given the opportunity to share in future profits.

Advice on which restructuring scenario best suits your situation?

At Florijnz we take a pragmatic, thoughtful approach to find the optimal strategy to keep your business healthy. With our extensive team of financial experts we are able to provide comprehensive analyses and clear reports. Together with you, we work towards the optimal result. It is very important to have an action plan ready in times of need. This prevents unnecessary risks and ensures that your business remains healthy. We are happy to help you.

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Marieke Klaassen
Marieke Klaassen van BeurdenPartner