Financing of companies undergoing restructuring

The COVID-19 pandemic and its economic side effects act to the detriment of entrepreneurs in various ways. Most notably, business partners often delay their payments due to financial problems of their own, resulting in further payment backlogs.

As we discussed in one of our earlier articles, one of the options available under Polish law is restructuring of a company. It is governed by the Restructuring Act of 15 May 2015 (Polish: prawo restrukturyzacyjne, Dz. U. 2020, poz 814).

The restructuring is a major intervention in assets and liabilities laid out in balance sheets of a company. Additionally, this procedure results in major alterations in organisational structure of the company. Its main goal is to make the company more profitable, for example by reduction of costs, discontinuation of unprofitable products or services, or by overall improvement of competitiveness, resulting from a review of management policies of the company in question.

Purely technical improvements, such as modernisation of production by introduction of more efficient equipment, may also be a part of restructuring. Such improvements allow the company to improve quality of products, while reducing costs of manufacturing, such as costs related to energy and materials. More modern equipment itself should also prove cheaper to maintain.

Cost reductions can apply to all levels of the company, from production to management. Costs are crucial in assessment of company’s profitability, thereby directly influencing the process of restructuring. Structure of costs determines, which areas of the company will be included in the process.

Lastly, restructuring touches upon management policies within the company and people who implement these policies. Change of industry, expansion into new markets, or even the slightest changes in management may lead to substantial profit.

Restructuring in general is a process of major changes, which are obviously difficult to overcome for many entrepreneurs, regardless of their future advantages. In order to answer these needs, various funds are offering dedicated products for large, industrial companies undergoing restructuring.

Funding can support restructuring in its entirety and can be used either as an additional capital or as an incentive for a new financing model. All processes mentioned earlier, combined with the funding may transform a company into an efficient and profitable entity, able to generate profits and pay its debts on its own.

We can offer two variants of funding:

  1. Restructuring of debt
    1. Possibility to readjust sum and terms of payments in accordance with current business activities,
    1. Reduction of financial costs by elimination of short-term (i.e. expensive) financing methods,
    1. Improvement of financial stability, acquisition of additional funds and ability to continue standard business activity without major financial obstacles, which would otherwise result from lack of readily available bank funding,
    1. Partial payment of debts, which allows to achieve greater financial security (eg. restructuring of security)
  2. Financing of restructuring plan
    1. Goals identical as in the first variant,
    1. Financing of operational restructuring, i.e. without major amendments to structure and location of business activities.

History and evolution of financial instrument demonstrate that numerous solutions created for large companies are subsequently offered to small and medium enterprises. We can therefore expect that funding schemes will allow restructuring on a wider scale, and that in turn will limit number of companies forced to shut down and file for bankruptcy. Restructuring is the best way for many entities for a fresh start and a more optimistic perspective.

Author: Jarosław Gierszal