The following Restructuring & Insolvency guidance note provides comprehensive and up to date legal information covering:
In the initial stages of distress, the lending group or creditors' committee may request that an independent chief restructuring officer (CRO) is appointed within the debtor company as a precondition to continued restructuring discussions. The appointment reassures them that changes will be made, that the company is taking the matter seriously and should help facilitate future discussions.
To be effective and to maximise the chances of a successful turnaround, the CRO must be appointed early on when the first warning signs of distress appear, such as:
a ratings downgrade or the company or its securities placed on negative watch (see Practice Note: Impact of credit ratings downgrades) or a fall in share price
excessive leverage giving little room for failure with missed milestones and profits warnings
an overambitious business plan and failure to meet sales targets (often aggressively set based on the assumption of exponential growth) plus declining margins
labour issue—an increase in employee grievances or employee turnover may signal problems on an operational level
failure to react to advances by a competitor
a build up of old inventory plus problems recovering aged receivables
over-expansion in areas where there is no synergy or failure to properly integrate new businesses
diminishing headroom under existing funding agreements
over reliance on one large client or supplier which is reconsidering its contractual relationships
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