In the Covid-19 crisis, a fresh look at restructuring is required. With many companies across all the sectors facing the problem due to this pandemic, a restructuring process is inevitable. Although, companies should avoid reaching the stage where restructuring processes are forced upon them so as not to lose initiative and control.
They should be able to detect the warning signs. But this pandemic has not given enough time for the companies to detect the early warning signs as no one measured the quantum and magnitude of this pandemic correctly. The companies are facing severe issues such as
A) Downturn in the market or shifting of consumer preferences from offline to online,
B) Liquidity crunch, companies are over leveraged with poor financial management,
C) Extensive Working capital with higher percentage of more than 6 months accounts receivables,
D) Corporate structure is no longer aligned with business objectives,
E) Company faces an actual or potential breach of covenant
Businesses all over the world are adopting new strategies to overcome the critical situation at hand. One of the most important aspects of these businesses will be looking for means to maintain cash continuity during this liquidity crisis.
The number of bankruptcies, restructuring and consolidation is now expected to rise in the coming quarters. Many businesses will find it challenging to fulfill their obligations to creditors given the significant drop in topline and squeeze in margin.
To respond to the changing market conditions, an option that financially distressed businesses can take is to restructure assets, operations, and capital structures internally or supervised by a court to keep the company solvent and steer the businesses back on track. Firms that engage in the restructuring process now will put themselves in the best position to stabilize operations and achieve the fresh start the business needs.
They can adapt more effectively and quickly in this rapidly changing marketplace. Secondly, it is essential to keep critical information flowing to the right parties. Thirdly, Protect sensitive, highly confidential data from falling into the wrong hands. Fourthly, develop a plan specific to your business – restructuring that suits your requirement.