Declining orders from customers, cash flow problems due to bad-paying debtors or failing management. Sometimes small and medium-sized business owners struggle to keep their heads above water.
We cover the steps a business in trouble can find itself in: corporate recovery, special management, bankruptcy and relaunch.
Corporate recovery
If it is five to twelve, as an entrepreneur you can hire a corporate recovery agency. Once a company's financial health drops toward a critical point, these corporate doctors are called in. Corporate recovery, also known as restructuring, aims to help businesses that are (or are in danger of being) in financial dire straits get back on their feet.
Often this danger is spotted first by the house bank. Most entrepreneurs have a loan with a bank. As soon as the bank notices that the entrepreneur can no longer meet his interest and repayment obligations, the bank's alarm goes off. Then every entrepreneur's specter comes true: his file is transferred by his regular relationship manager to the special management department.
Special management
When the bank thinks that an entrepreneur can no longer meet his interest and repayment obligations, the business becomes a "risk" for the bank. The company's file is then transferred by the local branch to the central special management department. This department makes an initial analysis of the business, which shows whether the business can still be saved through restructuring (phase 1) or whether the business is heading for bankruptcy (phase 2). The bank's behavior varies considerably during these two phases.
Phase 1: restructuring
In this scenario, the interests of the entrepreneur and the bank run parallel; both parties want to avert eventual bankruptcy through restructuring. At this stage, there is still (enough) time to revitalize the business. The bank's involvement intensifies, more reports are requested, and a financially sound recovery plan is demanded. At this stage, the special management department often engages external specialists to guide this process.
Phase 2: bankruptcy
But sometimes the tide can no longer be turned and you end up in phase 2. In this phase, it's every man for himself. The interests of the entrepreneur and the bank diverge; the entrepreneur wants to save his business from ruin, but in fact the bank no longer has confidence that the business will recover financially, even with the recovery plan. Behind the scenes, the bank is trying to limit the damage of its lending. The bank is pushing for a formal credit termination to contain its own losses. However, a credit termination does not mean that the bank is filing for bankruptcy for the business; it is purely damage control for its own lending.
Can you avert bankruptcy?
Corporate recovery agencies aim to avert bankruptcy. Although the bank is quick to notice signs of a difficult period and will deploy damage control measures, this does not have to mean the end of your business. Every entrepreneur has ups and downs. Do you see future prospects in your business, but are just having a tough time financially?
Deferral of payment
There are possibilities to avoid bankruptcy by, for example, applying for a moratorium. That way, you can apply for a 1.5-year moratorium on payments. Another possibility is to use the Private Arrangement Homologation Act (WHOA). Through this law you can make private agreements with creditors and, after approval by the court, obtain a postponement of payment. Be aware that the further you push the debts away, the bigger the pile of debts becomes.
Restart loan
The WHOA offers another great option if not all creditors agree to defer payment, namely a Time Out Arrangement. Under the TOA, for example, you can apply for a relaunch loan, which increases your chances of successfully continuing your business.
Is it too late for all possible options and are you at a loss? Then you can still try to sell your business. You never know if someone will see the benefits. And if not, sometimes there really is no other way out than to file for bankruptcy.
