For a variety of reasons, any private company runs the risk of collapse. In order to prevent the collapse of the enterprise with all the ensuing consequences, you can apply the proven scheme - financial recovery. Financial recovery is a series of bankruptcy recovery measures that involve a gradual settlement of debts based on an approved plan and guarantees issued.
Very successful firms are often on the verge of bankruptcy. Among them are the Italian airline Alitalia, the Sbarro restaurant chain, the sensational bankruptcy of tour operators in Russia. However, competent actions to overcome the crisis allowed many enterprises not only to survive in a complex and volatile world, but also to create more successful firms. There are many examples of this.
When you need to sound the alarm
If the company goes down, the first, in fact, what is happening should be noticed by the head and, of course, the founders of the company. And the sooner they pay attention to it, the better it will be for both owners and the company as a whole. Falling profits, growing debts, an imbalance between accounts payable and receivables - this is already a running “disease”. And the first alarming calls can be determined after a competent analysis and diagnosis of the company's competitiveness in a given period of time and in the future.
As the global economic situation is undergoing major changes, regular analytical observation of market volatility is especially important. And the financial recovery process needs to be developed and put into effect as soon as possible. Then the restoration of solvency of the enterprise will be much more successful. Analyzing the financial situation of the company, competent specialists can also think about how to change the situation, what to do. There is always a way out, even if you have to make radical changes. As the experience of many shows, there are practically no hopeless situations.
Anxiety: what to do first?
So, if all the signs of impending bankruptcy, as they say, are obvious, what to do first of all to save the company? The many years of experience of many executives who have managed to cope with the financial peak indicate that three conditions must be met:
- urgently sell all non-profit enterprises;
- stop cash outflows;
- direct all efforts and attention to the survival of the enterprise;
- tighten control over necessary expenses and cash inflows;
- identify the causes of loss of profit.
Who initiates the rescue operation
So, if the position of the company is unstable, then the initiators of the start of measures for financial recovery have the right to act:
- the owner of the property of the company;
- participants or founders (depending on the legal form of a private organization);
- third parties.
All of these representatives have the right to conduct an audit, and then submit the results to the first meeting of the founders with a motion. Further, the case is before the arbitration court, which makes a decision on the introduction of financial rehabilitation on the basis of the decision of the first meeting of the founders, regardless of this decision, or even in spite of it. An obligatory measure in this case is the provision of financial security. It implies:
- surety;
- state or municipal guarantees;
- bank guarantees;
- pledge (mortgage).
At the same time, it is necessary to provide the arbitration court with a plan for the financial recovery of the enterprise and a documented obligation to return the debts in stages. The plan is developed according to a certain scheme. And the debt repayment dates are agreed with all creditors.
Warranties and Obligations
The mechanism for saving an enterprise from bankruptcy in the form that exists today is applied only in Russia, although it has something in common with the German model of self-government. It aims to rehabilitate the enterprise, and not to stop its activities. That is, such a procedure of salvation from financial collapse has the goal of restoring the solvency and reputation of the debtor. And give him the opportunity to use his own strength, knowledge and experience.
There are clear obligations and time limitations, rights and guarantees. For example, the period of financial recovery is limited to two years. During this time, it is necessary at all points to fulfill the plan for overcoming the crisis, to pay off all the debts of the company. And also ensure the financial stability of the company. Contrary to the previous model of saving an enterprise from bankruptcy with the help of external management, as it was before 2002, the new model of overcoming the difficult financial situation allows the debtor to solve the problem himself. Indeed, who, if not himself, is better versed in this field of activity. And who, if not himself, can most effectively take into account the previous sad experience, mistakes and mistakes. The debtor assumes all risks. However, there are also disadvantages. Sometimes it is precisely the inept leadership, the erroneous strategy, that leads to the economic collapse. So, it is useless to hope for the previous leadership in such a situation. Better entrust the plan of salvation from the debt abyss to more experienced leaders.
What are the goals
Financial recovery is an opportunity to pay off debts and keep a good name, and at the same time continue your favorite work, save people jobs. To return financial viability to the company are capable of competent steps of the senior management. However, financial recovery can be introduced optionally when the company is practically bankrupt. There are a number of other reasons for this. It:
- the beginning of the loss of solvency, when the company is not bankrupt yet, but already on the verge of it;
- the company is already bankrupt, but there is still a chance to conduct a competent reorganization and get away from the need to sell off property and close the company;
- the goal of financial recovery is expressed in the growth of market attractiveness of the enterprise and the search for new investments.
By the way, in modern conditions, attracting new investments to the enterprise is becoming the most common goal of introducing a financial recovery procedure. The need to adapt to a changing market forces company managers to invest heavily in the reconstruction of production, providing it with market attractiveness for the future.
Change of conditions dictates special rules
After the start of the implementation of measures to overcome the crisis, the following occurs:
- Lenders have the right to ask the debtor only what is limited by the law on the financial recovery process.
- Previous claims of creditors are canceled.
- The seizure of property is permissible solely on the basis of a court decision.
- During the period of financial recovery, the payment of dividends and the distribution of profits between the founders are unacceptable.
- Penalties, fines, interest for previously unpaid debts, for failure to fulfill financial obligations are not charged, only current payments are accepted.
- The owner does not have the right to seize property from the debtor - a unitary enterprise.
- It is impossible to alienate a share (share) on the basis of withdrawal from the founders.
- It is forbidden to buy back a share (share) of debtors and to buy up the shares put up for sale.
Necessary restrictions
It can be seen from the foregoing that financial recovery is a way out of the crisis, requiring the implementation of two of the most significant measures: a plan for overcoming economic stagnation and a debt settlement schedule. The arbitral tribunal shall appoint an administrator. The rules are reflected in the Bankruptcy Law. Meanwhile, the debtor’s management staff continues to work. He is taking measures to overcome the difficult situation.
But the external financial recovery department of the company imposes a number of restrictions on the activities of the debtor and his team. For example, the debtor loses the ability to perform actions, the consequences of which are:
- growth of over 5% of accounts payable in relation to the amount that is reflected in the register of creditors' claims;
- sale of premises and equipment, it is allowed to sell only finished products of the enterprise;
- changing the order of fulfillment of requirements;
- the use of new funds taken on credit.
Act systematically
In order to implement the financial recovery plan most successfully, it must contain the following sections:
- summary of the procedure itself;
- analysis of the economic situation of the company;
- specific steps to save the company from economic collapse, increase its solvency;
- market analysis and competitiveness;
- production plan;
- financial plan;
- clear marketing activities of the company.
The development of step-by-step steps is the responsibility of a team of experienced strategists. Perhaps 90% of success depends on this work. The rest is up to the performers. And of course, constant monitoring of the implementation of the plan is necessary.
We change the course
Of course, the first thing that usually occurs at an enterprise that is on the verge of bankruptcy - this is a reduction in production costs. Sometimes you have to reduce staff, change management, reduce wages, sell subsidiaries or construction in progress. Yes, in some situations, effectively reducing business, restructuring production, selling part of the shares.
However, this is usually not enough. Measures of financial recovery can be radical changes that require in-depth analysis and understanding of the role of this production in a rapidly changing world. For example, the production of completely new products that are more in demand on the market and competitive. Another radical measure may be a change in the legal form of the enterprise. Other measures may include the conquest of new markets, the creation of new structures within the industry, the acquisition of sellers, suppliers. Thus, financial recovery is, of course, the restoration of the liquidity of the company, which must be adapted to the new conditions in order to correspond to the new time.
The nuances of the law
Bankruptcy laws and the financial recovery mechanism hide a number of subtleties that any leader will know about. For example, often a debtor is simply not able to fulfill the instantaneous requirements of all creditors. Namely, they together decide who to appoint the arbitration manager, what to sell from the property, whether to conclude a settlement agreement and so on. Therefore, it is important to enlist the support of non-categorical lenders.
And we must take into account that prior to the start of bankruptcy measures, manipulations with property can be declared illegal in a judicial proceeding. Therefore, one more advice from experts: do not pay off debts with any one creditor. Because it can be a disservice to him.
The arbitration manager is empowered to identify those transactions that were made contrary to the interests of creditors. Hence the next conclusion: to abandon such transactions. They will still have to be canceled.This applies to transactions completed three years before the emergence of a critical situation in the company.
One must also understand that bankruptcy cannot be equal protection against all creditors for both the debtor and its dependent persons. It is also important to understand that the company's management is responsible for all its actions and runs the risk of responding to the law if the total debt has crossed the size of the company's assets.
When all the steps are wasted
With skillful, competent decisions, the financial recovery of the debtor has every chance of ending before the deadline. An indicator for this is the full settlement of all debts, the absence of claims from creditors, and the economic stability of the company.
But a diametrically opposite situation may occur when the arbitral tribunal suspends the implementation of financial recovery for good reasons. It may be a matter of not submitting information on the settlement of debts to the arbitration court in accordance with the approved schedule. Either regular or prolonged (more than 15 days) ignoring claims of creditors approved by the debt repayment schedule, according to the organization’s financial recovery plan. The court has the right to declare the debtor bankrupt with all the ensuing consequences.
Liquidation is not an option
Liquidating a company is not as easy as it might seem at first glance. Of course, you can conduct a voluntary liquidation, bankruptcy proceedings, liquidation through offshore. But the correct and promising solution will still be the competent removal of the enterprise from the financial hole through the financial recovery procedure. Fortunately, there is such an opportunity, and everyone can take advantage of it.