What to try before you pursue a financial restructuring

Jan 17, 2021
Restructuring & recovery Liquidity Financial consulting

Each of the stakeholders in your business, no matter how big or small, will expect you to have considered some interim steps before you approach them for help.

Your financial stakeholders will generally want to support their customers in troubled times, but they may also want to ensure that others “share the pain” when they’re approached for additional funding.

While there is no hierarchy regarding whom to approach first or in what order, there is an expectation that you will have independently requested support from individual stakeholders before embarking on a more comprehensive solution or financial restructuring.

Below, we’ve set out some key options before considering a formal restructuring:

  • Government initiatives: Recent grants, supported loans, wage subsidy assistance and other programs should, wherever possible, either have already been used or been applied for.
  • Canada Revenue Agency (“CRA”) programs for deferral of payment of income and harmonized sales taxes: Take advantage of the support offered by CRA regarding deferral of liabilities, including, if necessary, entering into agreements with CRA that provide for additional time to pay your liabilities.
  • Sale of subsidiaries, assets or inventory no longer in use.
  • Stretching of trade creditors: No stakeholder is completely immune, so key trade creditors and suppliers should at least have been approached for additional credit and/or time for you to make payments to them.
  • Shareholders and private equity: Discussions must have been held with shareholders or existing private equity providers about offering additional equity.
  • Banks, asset-based lenders and leasing companies: Can additional facilities or bulge financing be made available on commercial terms (or even on a temporary basis) to provide more time, or is there another funder who may be an additional source of funds?
  • Trade suppliers: Discounts for earlier payment may be available.

These are not easy discussions to have, so early engagement with the RSM Restructuring and Recovery team will allow us to support you in these discussions and may increase the likelihood of success.

However, if the support available from the actions above is ultimately insufficient to solve the problem, then a comprehensive solution may be required: namely, financial restructuring.

Read next: Part 3: How to align stakeholder interests in a financial restructuring

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