THE SILVER BULLET?
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