You are the creditor of a company undergoing restructuring: 4 questions for recovery of your receivables.
The information communicated to creditors is often incomplete. What are the 4 questions to be put in order to obtain information of quality?
1 – Has the origin of the company’s difficulties been clearly defined?
Knowing for how long the company has been experiencing difficulties, and what measures have been undertaken since they occurred, is essential for a proper understanding of the current position.
2 – Do the historical financial statements properly reflect the company’s economic reality?
With regard to the company’s balance sheet structure, certain information such as the current breakdown of its liabilities, the weight of its working capital requirement and the sources of its consumption of cash and financing resources is often not available.
It will also be important to assess whether the information communicated provides a clear picture of the financial flows between group companies (if applicable) and to analyse any intragroup debt in terms of its nature and origin.
3 – Is the business plan presented a realistic one?
It is essential to determine whether the business plan is based on genuine opportunities and practical restructuring measures and provides an estimate of the company’s sustainable profitability and of the impact of the exceptional costs associated with the restructuring.
The financial data transmitted must provide visibility as to the company’s future cash flows, its alternative financing sources and above all its capacity to repay its debts.
4 – What sum may the creditor expect to recover and under what conditions?
The reply will depend on the seniority of the applicable debt as well as on any collateral or guarantees obtained as security and on their current value. It is important to understand the extent of the exposure of the company’s other creditors and whether any of them will have the benefit of any new money. It will then be possible to determine the conditions and bases of repayment of all the company’s debt including any waterfall arrangements defining creditors’ order of priority.
How can you get answers to all these questions?
Information of quality is an essential prerequisite for any process of negotiation. If you are a company creditor engaging in negotiation for recovery of your money, we can present you with an objective and independent diagnosis of the company’s past and prospective financial position.
Our concise conclusions will include:
- Analysis of the origin of the company’s difficulties, of its historical consumption of treasury, of its net debt and of any intercompany flows and balances;
- An estimate of the company’s future financing requirement, of the drivers for improvement of its operating performance and of any alternative sources of finance;
- A comprehensive breakdown of the company’s liabilities, of their seniority and of the associated guarantees.