Drawing up and assessing restructuring concepts

In the short term, some businesses or entire sectors will be confronted with a sometimes considerable decline in earnings due to the COVID-19 crisis. Frequently it is not possible for them to adjust the cost base accordingly. In such situations, an earnings crisis quickly turns into a liquidity crisis, which not only threatens the existence of the company, but also involves considerable personal risks for its director.

Entrepreneurs or directors must foresee and assess the consequences of the crisis for their companies at an early stage. In particular if a liquidity shortfall is in the offing or has occurred, directors have specific duties of diligence.

Although the German Bundestag decided on 23 March 2020 to suspend the obligation to file for insolvency for companies distressed by the COVID-19 pandemic until 30 September 2020, the related legal framework has not been provided yet. In our opinion, only the time limit for filing for insolvency will be extended, however, the directors are not relieved of their duties as long as there are reasons to file for insolvency. In any case, proof will have to be provided that the reason for filing for insolvency was caused by the COVID-19 pandemic and that there are reasonable prospects of restructuring if applying for public relief or negotiating financing or restructuring.

Even if the crisis will not lead directly to an insolvency scenario, scenario analyses are recommended for assessing the effects of various developments on the business in view of the currently prevailing very high uncertainty regarding the further development of the markets. For this purpose, measures to increase or stabilise profitability, to reduce costs, to release previously tied up liquidity, and also capital measures should be considered as restructuring measures.

Practice note

We will be pleased to assist you with our expertise in drawing up and assessing restructuring measures. In particular in situations of crisis, such as the current COVID-19 pandemic, an objective assessment of the economic situation will usually be required in the short term. Depending on the crisis situation

• focused analyses, for example in the context of an independent business review, or
• restructuring opinions (confirmation from the perspective of an objective third party that a distressed company will be likely to continue its business)

form a reliable basis for decision-making as well as a solid foundation for communication with your stakeholders and can help you to meet the requirements for applying for government relief.

Our cooperation partner Hanse Consulting offers you comprehensive and multi-disciplinary management consulting in situations of crisis. If required, we will gladly assist you with interim manager placements at short notice.

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