Restructuring/reorganisation loans as financial support

If your company has fallen into economic difficulties and you have an idea of how to get it back on track, provided you receive financial support, please read on.

Your commercial bank(s) should finance your business throughout a restructuring process if possible, so that you can succeed in a sustainable turnaround. It is a difficult step for an entrepreneur to admit to himself and his business environment that his company is in an economic crisis. The fear that failure will be equated with the ability of the entrepreneur or the management team naturally resonates. But it is precisely now, the sooner the better, that open communication with capital providers is necessary.

No capital provider will make further financial commitments unless you can show that your company has a high probability of being turned around. In order to receive a restructuring or reorganization loan, you need a conclusively comprehensible restructuring report with a positive going concern forecast.

For the investors, the optimization task is to weigh up in which scenario they are better off financially: in the case of a further financial commitment with an increased risk of total loss, or in the case of an exit that would lead your company into insolvency, with the hope of being repaid part of the previous commitment via the insolvency quota. So investors will make assumptions about the insolvency estate minus the costs of the proceedings and put this value in relation to their insolvency claims. If they assume that this ratio is less than the likely repayment of the previous credit plan plus a reorganization loan, the lending bank will probably agree to a reorganization. Your challenge, then, is to convince your commercial bank that a further loan commitment to your company is worthwhile to overcome an acute crisis or for a turnaround management.

As a rule, however, it does not remain with the main commercial bank as the point of contact. Rather, your commercial bank will expect you to also convince key suppliers, guarantors and customers to make their own restructuring contributions in the form of discounts, deferrals or debt waivers. If your company has already filed for creditor protection (insolvency), the Employment Agency and the Works Council will also be included in the group of creditors.

With a positive going concern forecast, you have the chance of a positive financing decision from your commercial bank and the support of significant other creditors. You will receive liquidity subject to your compliance with the submitted reorganization plan. Be prepared for your commercial bank to monitor you as you implement the reorganization plan. In most cases, commercial banks require that you hire a reorganization consultant to lead and drive the implementation. This makes sense, too, because turnaround consultants are used to handling such special situations professionally and communicating with creditors. Moreover, in this situation, you and your management team will have to run the day-to-day business under difficult conditions and will be under a lot of emotional strain.

Especially in a liquidity crisis, also include the possibility of asset-based financing.

Finally, there is the possibility of interim financing through your principal bank.


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