Quick Answer
Successful business rescues are more likely when financial distress is identified early, boards act decisively, appropriate professional advice is obtained and post-commencement finance is secured. Early intervention can make it easier for a company to address financial stress and achieve the desired rescue outcome.
If I look back at the successful business rescues I've been involved in, the following appears to be the common denominators:
- a financial director who is not in denial of cash constraints and shortages, identifies them at an early stage and competently deals with the issues;
- early intervention by the entire board of directors, i.e. acknowledging the seriousness of the cash shortages and competently dealing therewith;
- the competent dealing therewith involves the seeking of professional advice, assistance and guidance and where apposite the placing of the company into voluntary business rescue.
Early signs of financial distress include –
- constant harassment by creditors for payment;
- embarrassing conversations with creditors in which extended payment time periods are repeatedly requested;
- covenant breaches on loan agreements;
- receipt of letters of demand, summonses and applications from creditors.
Mature acknowledgment of cashflow constraints at an early stage and the open and frank discussion with professionals enhances prospects of rescuing distressed companies.
Thus, early acknowledgement of the financial stress, securing of the right professional advice and the immediate dealing with the issues including the obtaining of post-commencement finance, usually and in most instances does lead to a successful business rescue.
Companies experiencing financial distress may also require advice on broader corporate and commercial matters affecting directors, shareholders and the business.
Author: Colin Strime
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