Companies in financial distress

Financial trouble rarely announces itself. It shows up as a supplier who wants payment on delivery, a quarter that misses the budget, a bank that asks for figures more often than before. Each of these can be handled on its own, and it is tempting to wait for the next contract to put the rest right. But the options open to a business under pressure narrow over time, and what could have been settled quietly at the start may later have to be settled in court.

Acting early in a crisis is less about a single rescue than about keeping choices open while the company can still make them. It means knowing what the law expects of the board, what can be done discreetly, and what each step commits you to:

• the rules on what the board must do when losses have eaten into the company’s equity, and on calling the shareholders together to decide its future;
• the rules on loan covenants, on the information a lender is owed, and on what a breach entitles the bank to do;
• the rules on confidential pre-insolvency procedures, in which a mediator or an expert helps the company reach terms without publicity;
• the rules on fresh money in a crisis, and on whether bridge financing keeps its protection if the rescue later fails;
• the rules on support from shareholders — a loan, new capital, the conversion of their own claims into shares — and on the position each leaves them in;
• the rules on reducing working hours or staff numbers, and on the consultation that must come first;
• the rules on selling assets, a division or the whole business under pressure, and on a price and a process that will stand up to later scrutiny;
• the rules on suppliers who shorten payment terms, demand security or threaten to stop deliveries.

Our lawyers can support you with this.