Funding is key

Finding financial resources is very important in the recovery of SME companies. Their absence can lead to the discontinuation of restructuring proceedings or the revocation of the arrangement, resulting in bankruptcy.

A company decides to restructure most often when its liquidity is shaky and it is unable to pay its current liabilities. It therefore does not have the own funds to support its recovery. This, in turn, requires an adequate level of financing, obtained from external sources, concerning not only restructuring plans, but also current operations. Loans, trade credits or finding an investor are a lifeline.

The creditor may use

MŚP zazwyczaj wybierają opcje finansowania kredytem bankowym, który jednak przy zagrożeniu utraty płynności i przy niskiej wartości aktywów przedsiębiorstwa, z roku na rok staje się trudniejszy do uzyskania. A w przypadku firmy w restrukturyzacji sądowej wręcz niemożliwy.

- Restructuring without an appropriate capital base is sometimes difficult or even impossible to carry out. Unfortunately, financial institutions usually do not show interest in providing support, as the company from the moment the proceedings are initiated becomes known as being under restructuring, which for the bank means an increased risk of cooperation,' notes Małgorzata Anisimowicz, President of PMR Restructuring SA.

Sometimes, however, the bank does not have adequate collateral for the company's previous loans and then decides to support the company in the hope of recovering a larger share of the liabilities. It is also advantageous to obtain support from a financial institution when only one bank is involved in financing the company. However, as restructuring specialists emphasise - these are exceptional, specific situations. Most companies cannot count on such support.
With the debtor's help comes restructuring law, which secures financial institutions to assist the indebted company in its recovery. A creditor who decides to bail out the debtor can get more favourable terms in an arrangement procedure.
This is stated in Article 162(2) of the Act - Restructuring Law, in force since 01.01.2016. Act - Restructuring Law, which allows for the granting of more favourable restructuring conditions to those creditors who, after the opening of restructuring proceedings, provide the debtor with financing - in the form of credit, bonds, bank guarantees, letters of credit or on the basis of any other financial instrument necessary for the implementation of the arrangement.

Numerous methods of financing

According to restructuring advisers, the most common method of financing ongoing operations is trade credit from counterparties. However, it requires the debtor to rebuild good relationships with its partners.
It is increasingly common to find financing for companies in repair with factoring.
Funding for the company's continued operation can also be secured by finding an investor. For this reason, it is important that the restructuring consultant who manages the recovery process has a team of high-calibre professionals with experience in attracting investors.

- Supporting companies in obtaining financing to secure the implementation of their plans is a priority and basic stage in building the architecture of a restructuring project, says Małgorzata Anisimowicz. - Our specialisation as part of a comprehensive service of the restructuring process is to attract investors, propose options of financial support and analyse its most effective variants for the company," explains Małgorzata Anisimowicz, President of PMR Restructurings SA.
The financing scenarios take into account both loan financing and debt securities issuance.
- The results of our clients' cooperation to date have created partnerships and trust in the proposed range of financial support," adds President Anisimowicz.

An adviser will help

The role of the supervisor or manager in the restructuring process cannot be overestimated. Pursuant to Article 26(1) of the Restructuring Law, the supervisor or administrators provide information on possible forms of financing and cooperate to obtain it. The restructuring adviser also plays an important educational role vis-à-vis financial entities by providing information on the specifics of the proceedings and the risks involved.
In addition, through the developed trust of investment funds, resulting from the effects of conducted restructuring proceedings, an advisor providing comprehensive restructuring services both increases the chances of obtaining financing that is favourable in the situation in which the company finds itself and guarantees proper control of the restructuring process, as well as the preparation of the necessary reporting.

- Looking for an investor on one's own by an entity that has no experience in this area is a big risk. There is no guarantee of success and the lengthy process may lead the company into a larger financial crisis, ending in bankruptcy,' points out Małgorzata Anisimowicz.

The article appeared in the daily newspaper Rzeczpospolita:19 December 2019:" Funding is key