THE SIL­VER BUL­LET?

Finweek English Edition - - INSIGHT: LOCAL -

In any res­cue regime, a de­gree of fi­nan­cial sup­port is re­quired from the com­mer­cial en­vi­ron­ment through the pro­vi­sion of ad­di­tional fund­ing and re­quest­ing ex­ist­ing cred­i­tors to post­pone or com­pro­mise their claims. Based on this fact, res­cue regimes be­come con­strained dur­ing times of gen­eral eco­nomic turn­down (as was seen in the 2008 global fi­nan­cial cri­sis) as the credit crunch be­comes an ob­sta­cle for ac­cess­ing fi­nan­cial re­sources. In many of the failed res­cues to date, the in­abil­ity to raise PCF was cited as the main rea­son for their fail­ure. There­fore one of the crit­i­cal com­po­nents of the busi­ness res­cue plan in­volves se­cur­ing turn­around fi­nance to meet short-term trade obli­ga­tions (such as work­ing cap­i­tal re­quire­ments), cov­er­ing turn­around/ re­struc­tur­ing costs, and restor­ing the com­pany’s bal­ance sheet to sol­vency.

Ob­tain­ing turn­around fi­nance and re­turn­ing the busi­ness to liq­uid­ity presents a chal­lenge for fi­nan­cially distressed or­gan­i­sa­tions. Loan fi­nanc­ing is of­ten dif­fi­cult to ob­tain as th­ese in­sti­tu­tions are fre­quently try­ing to min­imise risk, not in­crease it, and re­quire un­en­cum­bered as­sets as surety (some­thing the distressed or­gan­i­sa­tion nor­mally does not have). The last re­sort is to ap­proach new fun­ders to in­vest in the busi­ness, which in­clude

Pe­riod Post-fil­ing to first meet­ing with cred­i­tors Af­ter Phase 1 fund­ing has been sta­bilised to pre-res­cue plan ap­proval Af­ter res­cue plan un­til busi­ness has come out of fi­nan­cial dis­tress

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