Company restructuring: Don't wait, start in a structured way!

In the event of a company crisis that poses an acute threat to its existence, a comprehensive corporate restructuring is often the only solution to restore the company's ability to function. It goes without saying that corporate restructuring must not only be well thought out, but must also take into account the current situation and incorporate strategic objectives. In short, a successful company restructuring requires not only a forward-looking restructuring concept, but sometimes also a profound restructuring report.
 

What is a restructuring concept for?

A resilient restructuring concept fulfills several tasks:

• It relentlessly reveals the performance and financial situation of the company in crisis.
• It subjects the causes of the crisis to a detailed analysis.
• It assesses the extent and severity of the corporate crisis.
• It identifies particularly crisis-prone parts of the company.

On this basis, companies receive a catalogue of operational and strategic measures with which they can overcome the acute crisis and get back on the road to success in the long term.

The fact that the reorganization concept outlines a way out of an existentially threatening corporate crisis by presenting the current situation and describing the goals associated with the reorganization is only one function, however. Such a concept also makes it possible to realistically assess the prospects of success of the planned measures. Finally, it cannot be ruled out that the company's financial crisis is already so far advanced that there is a reason for insolvency. In this case, restructuring should be sought as part of standard insolvency proceedings or insolvency under self-administration.

Not least, the restructuring concept indirectly serves as an instrument for regaining lost stakeholder confidence in the company's ability to continue as a going concern. The relevant interest groups essentially include the following:

1. the top performers among the employees who could leave the company during the crisis but are expected to take on important tasks in the period following the targeted turnaround;
2. business partners who could terminate the collaboration without a coherent restructuring concept and thus further weaken the company's position;
3. the investors who include the restructuring concept in their assessment of the company's ability to restructure.
    

What requirements must a restructuring concept meet?

Although the concept plays a central role in the preparation and implementation of a restructuring, there are no legal requirements for the structure and content of such action plans. This shortcoming becomes particularly apparent when a company restructuring fails - despite all efforts. If the plan was based on a concept that was deficient in various respects, this fact could in some cases have serious consequences for the liable parties involved in the failed company restructuring. Possible consequences include the nullity of loan agreements and the provision of collateral, the option of an insolvency challenge in accordance with Section 133 of the German Insolvency Code (InsO) or possible claims for damages due to immoral delay in filing for insolvency.

However, in a series of rulings, the Federal Court of Justice (BGH) has compiled a number of aspects that a viable restructuring concept must take into account. The minimum requirements include a restructuring concept

• the actual initial situation of the company that has got into difficulties,
• the existing causes of the corporate crisis,
• the resulting restructuring measures and
• the new mission statement of the restructured company

.

These requirements for restructuring concepts have been systematized in various ways. For example, the Institute for the Standardization of Corporate Restructuring (ISU) has formulated "Minimum requirements for restructuring concepts" and the "Principles of proper restructuring concepts".

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What distinguishes a restructuring concept from a restructuring report?

It is important that restructuring concepts meet certain content requirements. On the one hand, they should show a way out of a serious corporate crisis. On the other hand, their function is to convince investors and other stakeholders of the company's ability to restructure. In view of the complexity of this challenge, it is advisable not to attempt to draw up a restructuring concept yourself, but to commission independent experts to do so. In some cases, it may make sense to supplement the concept with an expert opinion that assesses the fundamental reorganization capability of the company (restructuring report). The reorganization report should also be prepared by an expert who has an external, neutral view of the company in crisis. It offers two key advantages:

1. A restructuring report prepared by an independent expert is trustworthy and highly persuasive for investors and other stakeholders.
2. A restructuring report minimizes the risk of liability consequences. If the expert opinion on the ability to restructure comes to a negative conclusion, the company can immediately apply for the initiation of insolvency proceedings and seek to restructure itself within this framework. In the event that the company restructuring fails, there are at least no disadvantages to be feared that would result from an inadequate restructuring concept.
    

What is a restructuring report according to IDW S6?

In analogy to the contents of a simple restructuring concept, the legislator has also hardly defined the structure and content of restructuring reports. For this reason, the Institut der Wirtschaftsprüfer e.V. (IDW) has developed the Standard "IDW S6 Expert Report", which serves as a helpful guide when preparing a restructuring report. Although an IDW S6 report does not protect against adverse legal consequences per se, it does ensure that the report meets a certain minimum set of requirements. The Federal Court of Justice has repeatedly confirmed this minimum in its case law, for example on June 14, 2018. This is another reason why banks and other external lenders often expressly expect the submission of an IDW S6 report.
 

What constitutes an IDW S6 report?

An IDW S6 report has a clear structure:

1. Description of the company in crisis and compilation of the most important company data
2. Analysis of the company's business situation, which identifies the causes of the company crisis and assesses the extent and nature of the company crisis, in order to finally identify the parts of the company in crisis
3. Definition of the restructuring objectives by describing the desired corporate mission statement
4. Compilation of restructuring measures already implemented and description of further actions to be implemented
5. Draft of an integrated restructuring plan, which shows the feasibility of implementing the measures
6. Annex with key figures on the financial, asset and earnings position of the company in crisis

If IDW S6 reports are drawn up in accordance with this structure, they serve on the one hand as a reliable basis on which the company's ability to restructure, including the associated prospects of success, can be assessed. On the other hand, profound expert opinions ideally allow the lost trust of stakeholders to be regained.
 

Who may prepare restructuring reports?

Whoever wants to prepare IDW S6 reports does not need any special authorization or license to do so. In principle, any independent person with the appropriate business and legal expertise may prepare both expert opinions and concepts for company restructuring. In the event of an acute crisis that threatens the company's existence, it is highly advisable to rely on the expertise of experienced restructuring consultants. External and therefore neutral experts accompany and support companies in all aspects of restructuring. With a professionally prepared expert opinion, companies have a tool at their disposal with which they can strengthen their negotiating position with investors and convince external and internal stakeholders that the restructuring makes sense. In addition, such an expert opinion minimizes the liability risk on the part of the company should further developments take an unfavourable course.
 

Don't wait, start in a structured way!

Even in the event of a serious corporate crisis, there must be no rash, spontaneous decisions. The company can often still be saved with a clear restructuring concept that is implemented quickly. Many successful examples show that reorganization reports prepared by independent experts have been the decisive factor. This means that not only are the minimum formal and substantive requirements met, but the expert assessment of the company's ability to restructure also strengthens its position in a difficult situation - and thus paves the way for the company's continued existence.

Is your company in the midst of a serious crisis? Don't hesitate to contact us. We will support you immediately in finding suitable interim professionals for corporate restructuring!