Why administration isn’t always the right business rescue route
April 16, 2021
A perfect illustration – a road haulage business rescue
When a well-established road haulage business came to Opus for advice, the question posed was simple enough: do we have to lose everything by going into Administration? Its owners and accountants were insistent that there must be a better way out of the financial predicament it faced.
This was despite a brush with their bank’s recovery unit nine months earlier and more recently, clear recommendations from two insolvency firms that Administration was the only solution available, even if the equity in the business would be wiped out and unsecured creditors would take a hammering.
For sure there were underlying issues with the business model and HMRC were pressing for settlement of overdue VAT and payroll liabilities, but this was a struggling but viable business in need of some vigorous restructuring TLC and new owners with the financial muscle to satisfy its working capital needs.
Within two months, a share sale to a bigger transport company had been completed. Creditors had been paid in full, while the original owners had received a substantial payment for their shares and had been released from their personal guarantees to the lenders, as well being retained on a short-term consultancy basis.
The full case study can be found here.
Why restructuring skills and M&A expertise matter
Faced with a struggling business, it can be far too easy to look no further than whether putting it into Administration or Liquidation will produce the best result for creditors, on the assumption that it is insolvent and that they are the only remaining interested party.
Assessing the true value of the assets and identifying potential going concern rescuers takes a different mindset and other skills, as does negotiating and concluding the sale. Advisors need to see beyond the immediate crisis and start pulling up the plumbing to see where the upsides are lurking, hidden from view by the fog of cash flow war.
Restructuring skills can help tidy up even a seriously challenged enterprise to make it more attractive. Surplus assets can be turned into cash, costs cut and unprofitable customer relationships improved or ended. Negotiations with pressing creditors can buy time, as in the case of the road haulage business, where HMRC were persuaded to hold off while the sale option was explored.
M&A experts live and breathe the practicalities and realities of selling businesses. They know the art of the possible, they can quickly research markets to identify potential buyers and then conduct a discreet marketing process. They are particularly adept at spotting and turning away the time wasters that plague so many exit assignments.
Business rescue – taking action early
Our road haulage example was very nearly a case of leaving things too late, not helped by the tunnel vision advice the owners were given initially. Fortunately, there was still sufficient value left and the damage to the business not yet too serious that it could not be rescued.
Nevertheless, it really is never too early to start taking expert advice about the health of a business if it is struggling to make a consistent and meaningful profit or running into issues with paying its bills. It may be a cliché, but timing and speed are both the essence of a successful business rescue.
If your business is experiencing financial problems, we are here to help you to find the best way forward. Our ethos is to work with people to find solutions, not to judge them. Please contact one of our Partners at your nearest office.