The interim manager accompanied a medium-sized medical technology company threatened with insolvency through the restructuring process for a year. Initially, insolvency was successfully averted out of court. However, the Covid-19 pandemic then led to insolvency proceedings. The interim manager's main tasks included advising the management on all aspects of insolvency and restructuring as well as setting up an efficient controlling system.
Controlling of service areas established and weaknesses uncovered
The long-established company had been integrated into a large medical technology component manufacturing group as an "extended workbench". Following a carve-out and further changes of ownership, it was held by a medium-sized group of companies at the time of the mandate.
The interim manager was originally commissioned by the shareholders to review the controlling of the purchasing, supply chain and production departments. The aim was to set up a key performance indicator cockpit tailored to the needs of the managers. The IT-savvy interim manager used the ERP system SAP R/3 and the standard software MS Excel. He designed a KPI cockpit that provided a quick overview of meaningful parameters such as capacity utilization, degree of utilization, productivity, cost centre variance and key figures on working capital such as inventories (raw materials, consumables, supplies and finished goods).
However, the new transparency also revealed the first weak points in the very heterogeneous production:
- Personnel and plant-related overcapacities of up to 30 percent due to a lack of orders
- Despite the overcapacities, high backlogs and WiP in the production process
- Lack of overall control of the production process
- Inefficient purchasing processes due to a lack of digitalization
- High capital commitment, ergo lack of liquidity due to excess inventory
However, the causes of the company's precarious situation were not exclusively to be found in the operational production area, but lay far deeper than it initially seemed.
Over-indebtedness and negative going concern forecast - insolvency readiness determined
In the next step, the interim manager analyzed the company's assets, financial and earnings position and overall situation together with the management. As a result, it was determined that the company was ready for insolvency. It was foreseeable that the company would be overindebted by the next reporting date. The current liquidity planning, which had been revised and reactivated in the meantime, showed several shortfalls in the relevant planning period.
This combination resulted in a negative going concern forecast, which the interim manager recognized as the fulfillment of insolvency maturity and reported to the management and the shareholders. He also familiarized the management, which had little knowledge of insolvency law, with the liability relevance of his findings:
- Prohibition of disbursements in accordance with the German Limited Liability Companies Act (GmbHG) from the onset of insolvency maturity
- Personal liability of the managing director for all disbursements after the onset of insolvency maturity
- Obligation to file for insolvency within a period of time or to eliminate the reasons for insolvency
- . Removal of the reasons for insolvency
Shareholders avert insolvency through capital increase and new liquidity
At the same time, he presented various options for action, both out of court and in court. At the suggestion of the interim manager, the company management decided to eliminate the over-indebtedness through a capital increase and liquidity-generating measures. In addition, a comprehensive package of short and medium-term measures was developed, the implementation of which was initiated promptly. These included:
- Reduction of purchase prices by renegotiating supplier contracts for A materials
- Concept for inventory management of raw materials/materials through ranges of coverage
- Reduction of hours in employees' flexitime accounts
- Short-time work and temporary reduction in working hours under collective bargaining agreements
- Hiring freeze, no extension or termination of fixed-term employment contracts
- Reduction of working hours under collective bargaining agreements
- Hiring freeze, no extension or Termination of fixed-term employment contracts
- Outsourcing of production parts
- Discontinuation of orders that do not cover costs or loss-making orders
- Price increases for discontinued products
- Reduction of stocks of finished products in consignment warehouses
- Early retirement arrangements
The interim manager presented the progress of the measures and the KPI cockpit to the shareholders at the monthly steering committee meetings.
Strategic and operational analysis of the causes of the crisis reveals omissions
The strategic analysis of the causes of the crisis by the management and interim manager came to the conclusion that necessary strategic changes had not been made since the carve-out. For example, the company had failed to expand its product portfolio from simple component production to the development of complete systems in cooperation with partners. This was one of the reasons why the company was dependent on a few major customers.
But the company had also failed to take sufficient action in terms of processes. A transformation from rigid corporate structures, processes and culture to an agile medium-sized company had failed to materialize - as had important replacement investments in structure and systems.
Comprehensive package of measures developed for a future-proof orientation
The management, management team and interim manager derived a comprehensive catalog of long-term and medium-term measures from the analysis. These included:
- Based on an internal analysis of strengths and weaknesses and an external market analysis, a potential future product portfolio was developed and the resources required for its realization were planned.
- The current product portfolio was reviewed with the aim of identifying low-margin and loss-making products and developing options for action to increase margins.
- A concept was developed for the 3-year plan to reduce the identified excess personnel capacity.
- A relevant area of production (surface pre-treatment) was fully integrated on the basis of a make-or-buy analysis developed by the interim manager.
Covid-19 consequences ultimately force company into insolvency proceedings
After the company had laid the foundations for healthy business operations, the Covid-19 pandemic caused sales to plummet by around 20 percent. This weighed so heavily on the company that the interim manager was once again forced to declare insolvency. In contrast to the first time, however, the shareholders were no longer prepared to provide new liquidity.
The interim manager then advised the company in detail on the options for court-ordered restructuring of the company under self-administration. Due to the complexity of such proceedings, a consulting firm specializing in self-administration proceedings was called in.
Development of a restructuring concept in accordance with the IDW S6 standard
When initiating and during the so-called provisional proceedings, the interim manager worked with the restructuring consultancy to develop a restructuring concept in accordance with the IDW S6 standard, which incorporated the findings on weaknesses and countermeasures developed in advance. The restructuring concept had to be created within 3 months under high time pressure. The transparency regained by the interim manager in controlling made a significant contribution to the timely completion.
The interim manager's assignment ended after almost 12 months. His continued involvement in the further implementation of the restructuring measures was considered, but rejected due to time restrictions.
