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PLANT IN DE PROBLEMS

August 18, 2020

How does JBR work when a company ends up in Special Management? What steps are needed to restructure a company to avoid bankruptcy?

On a certain day, JBR receives a call from the DGA of an internationally operating factory that is primarily a supplier to the automotive industry*. He says he has been told by the account manager of the Special Management department that he must call in a restructuring specialist. He himself thinks this is rather exaggerated, because with some extra credit he would be out of trouble in no time. We agree to meet the next day.

When we meet he says he will have time for us for an hour or so. In the end, our conversation lasts more than four hours. In recent years, the company has experienced strong international growth and its total turnover is now well in excess of EUR 100 million. There are now also production facilities in Poland and Mexico, among other places. In addition, a new product has been developed in collaboration with a German manufacturer, which has led to considerable start-up losses.

 

Threat of bankruptcy

During the meeting it became clear to us that the company was facing a number of problems. The bank has since indicated that it has little confidence in the entrepreneur and is considering cancelling the financing. In addition, there is now also a backlog with the tax authorities, of which the bank has not yet been informed. According to the bank conditions this should have been done and will not contribute to the confidence of the bank. If no action is taken quickly, bankruptcy threatens.

The working capital is financed by a long-term loan that has to be repaid every quarter. The company is unable to pay the next instalment on the loan. In addition, there is a relatively small current account credit facility that is too small to cope with liquidity fluctuations. As in almost all sectors, large customers take plenty of time to pay invoices.

We then discuss the company's forecast, which turns out to be rather unclear and raises more questions than answers. The figures are prepared by the internal financial man in collaboration with the accountant. The financial man is an excellent bookkeeper, but does not have the knowledge required for a company of this size. The accountant is from a small local firm, while the company would need support from one of the big accounting firms.

 

Quick scan

In the meantime, it has become clear to the entrepreneur that he has the necessary problems. We agree that JBR We will perform a quick scan and draw up a proper liquidity forecast. A quick scan is a concise presentation that indicates what the problems within the company are and especially what the possible solutions are. Finally, we ask permission to contact the bank directly to discuss our first impressions.

The account manager at Bijzonder Beheer says he has not had contact with his client for very long and is very shocked by the scale of the problems. She wonders whether there is still enough time to save the business, also in view of the DMS's attitude. We discuss our findings, the changing attitude of the DMS and propose to discuss our quick scan with the bank in two weeks. The bank wants a quick scan within a week so we will have to work hard.

From the next day onwards, we will be at the company or in our office almost day and night to process all the information. In the meantime, we also compile a list of action items that require immediate attention.

The tax authorities are contacted to discuss the situation and we agree to present a proposal to catch up with the arrears within two weeks. We also talk to a number of creditors about allowing them to pay certain invoices a little later. Unfortunately, this is not always possible, but because a number of major creditors with whom the company has been doing business for a long time are prepared to do so, some breathing space is created.

Naturally, the collection of the debtors is given the highest priority. These talks are difficult, although two customers indicate that they are prepared to look favourably on an earlier payment and one manufacturer indicates that it will pay the invoices immediately because it is fully dependent on timely deliveries.

 

Cash flow forecast

The quick scan is finished just in time: under pressure everything liquefies! An appointment is made with the bank in which, of course, the DMS is also present. We discuss the results that have already been achieved in the first week, as well as the further action points that we have defined. The bank is also very happy with the liquidity forecast. It shows that there are some challenges, but that there is enough room to continue to meet almost all obligations in the coming months. Fortunately, the bank is now also willing to postpone the upcoming loan repayment by a quarter, which creates some more room in the liquidity picture.

The managing director speaks and indicates that it is clear to him that the company needs a more professional financial director and that he is already looking for one. He has also spoken to five major accountancy firms to make an offer for the preparation of the annual accounts, advice on the organisation of the (financial) administration and tax advice. He also indicates that he will pay for the further development of the new product, in which he has great confidence, from his own resources.

 

Restoring confidence

During the meeting it becomes clear that the bank's confidence in the entrepreneur is starting to recover. The DMS has made it clear that he now also sees considerable problems and that he will work hard on them with his adviser. We agree with the bank to inform them regularly about the progress and also to report any setbacks in time. We also say that within two weeks we will present a substantiated proposal to bring the financing more in line with the company's activities.

Fortunately, there will be no major setbacks in the coming weeks and the actions we have undertaken are beginning to bear fruit. We have submitted a proposal to the bank to restructure the financing that will be taken into consideration.

For a number of months, we have contact with the entrepreneur at least once a week, sometimes one or two days in a row and sometimes only by telephone. Under a number of conditions, the bank is prepared to adjust the structure of the financing, making the business much more financially flexible.

Some six months after we began our assignment, the bank says they have regained confidence in the continuity of the business and will provide the business with less intensive support. After a year, the company is once again financially healthy, with a good financial director and a new accountant released from special administration. The financing structure is now in order, the financial reports are reliable and the managing director makes it clear that he is pleased with all the improvements and is once again able to be a real entrepreneur.

* The specific product the company makes is not mentioned in order to prevent deduction of the company name.

 

More information and contact details

Wondering what JBR can do as a partner in business restructuring? Then please contact us.

COMPANY RESTRUCTURING: ACTIVITIES EN CORE VALUE

Ronald van Rijn

+31 (0) 6 533 409 75
r.vanrijn@jbr.nl

Frank Steenhuisen

+31 (0)6 229 863 85
f.steenhuisen@jbr.nl