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Contingency planning & insolvency
Helping stakeholders understand the alternative options and achieve the best outcome
Financial stakeholders often need a “plan B” in case their preferred solution falls through. That’s why contingency planning has become even more important, with more complex capital structures and volatile financial markets.
A well designed contingency plan identifies the drivers and relative costs and benefits between a consensual solution and an enforcement-based strategy.
While the causes of financial distress may differ, experience has shown the benefits of appropriate contingency planning in terms of value preservation.
Contingency planning is aimed at minimising (as far as possible) the adverse impacts on a company’s business following the appointment of an Insolvency Practitioner (“IP”).
Our Restructuring Services team has deep situational experience across a broad range of industries and will bring in additional sector specialists and subject matter experts, including tax, from elsewhere within Deloitte as required.
Issues to consider include:
- Security structure and sub-ordination
- Enforcement rights
- Impact of a formal insolvency on ability to continue to operate and possible value destruction
- Stakeholder analysis
- Development of mitigation strategies
- Tax planning
- Options review
The breadth of insolvency skills of the Restructuring Services team enables Deloitte to design detailed and viable solutions which can be delivered across borders, industries and processes. The fundamental elements of our approach are:
- Working alongside our advisory teams to establish alternative strategies;
- Identify key concerns and manage the stakeholders throughout the process;
- Work with tax and legal advisers to devise a practical implementation plan;
- If appropriate, plan for short notice procedures;
- Delivery of the insolvency based solution.
Contingency planning for creditors
Any party involved in restructuring negotiations will want to understand the implications for them if a consensual agreement for a refinancing or restructuring cannot be achieved.
For Lenders, this may include contingency planning to take control of the borrower in the event of deadlock with management or shareholders.
The situation is likely to be highly dynamic.
A period of contingency planning may therefore run in parallel to restructuring negotiations. Moreover the work streams are likely to be closely linked with the results of the contingency planning process informing the restructuring negotiations and vice versa.
Contingency planning for corporates
For directors, dealing with solvency issues can be extremely stressful especially given potential personal liability concerns.
A realistic assessment of the position is required together with an evaluation of the available options. Above all, directors should avoid the risk of sticking their heads in the sand.
Early dialogue with the company’s lenders may be appropriate in the event of potential or actual covenant breach.
Additional steps for a board to take in such circumstances would include taking professional advice including contingency planning in the event that agreement cannot be reached with the company’s financiers.
If caught early, this may result in the successful restructuring of the company or if not, and the company is forced into an insolvency process, then the board will have been seen to take appropriate action to protect value for creditors.
Contingency planning – Financial services
Our restructuring services practitioners have experience of major financial services restructurings for example for the Icelandic banking crisis.
Our approach brings together situational experience of our restructuring services team, sector expertise from our Financial Services practice and regulatory insight from the Deloitte Centre for Regulatory Studies.