Business Restructuring and Bankruptcy Risks


In today’s volatile, uncertain, complex and changing economy and the devastating impact of the Covid-19 crisis worldwide the world has ever faced right now,business restructuring happening across many industries have put additional challenges and threats in front of human resource, business leaders and governments as well as corporations in the midst of bankruptcy risks, as well as the employees who have been impacted badly by severe redundancies and unemployment. Countless businesses have undergone corporate restructuring all over the world and most of these business restructurings have included layoffs, downsizing, streamlined business units, etc. Regardless of the reason for business restructuring, it’s imperative that companiesto strategically and wiselyconsider their workforce and the potential impact on their employment during the restructuring process.

During this pandemic, a lot of corporations have performed a comprehensive business operations review to identify operational inefficiencies while working closely with key stakeholders to save costs and reduce overheads, especially those businesses which are underperforming. Companies have looked through their unprofitable business segments, divisions or affiliates, and quickly identify any weaknesses in systems, procedures and controls to turnaround their businesses.

As businesses have evolved, corporations can do their business restructure through:

  • Redesigning, redefining and implementing an overall strategic turnaround and restructuring plan for their businesses;
  • Obtaining operational consultation at each stage of each of their business;
  • Getting consultation services by addressing bankruptcy risks;
  • Negotiating for a loan restructuring;
  • Injecting more equity financing; 
  • Downsizing business or closing down their unprofitable business; and
  • Preparing a priority timeline for their business turnaround.
With their expertise, experience and strong corporate team, corporations can get valuable insights and implement strategic priorities and actions in avoiding future bankruptcy risks situations. They have to understand the causes of the company's past shortfall and assess their business' short-term and long-term viability. At the same time, they have to prepare short and long-term financial projections and cash flows and developing operational tools and reports.

For any organizations, bankruptcy is not an option. In most cases, bankruptcy is a continuous process where it is possible to distinguish several stages, from the emergence of the first signs of the financial crisis, through the blindness and ignorance towards the financial and nonfinancial symptoms of crisis in a firm, to inappropriate activities that lead to the final phase of the crisis, i.e. business failure or bankruptcy. No company is immune from failure, therefore, the management must be able to detect early warning signals, so that more time is available for preparing and reacting in subsequent phases of a crises, to stay afloat.  Before bankruptcies take place, usually companies experience a crisis phase which has been caused badly by exogenous and endogenous causes.

The key factors influencing the corporate bankruptcy Risks

  • Market conditions badly affecting the local market;
  • Huge capital expenses;
  • Absence of good leadership and corporate governance;
  • Irresponsible huge debts (financial leverage effect);
  • Lack of expertise (arrogance of managers) and incompetent managers;
  • Enormous financial losses due to unsuccessful expansion; and
  • Unsuccessful and slow restructure of company.

Successful Business Restructuring 

  • Do it quickly: Do not wait too long to restructure, if there are signs of trouble.
  • Conduct accurate assessments: If companies have an accurate assessment, they can refine their strategies and create a turnaround plan;
  • Review strategy and business model to align the restructuring plan;
  • Generate quick sales or revenue boost;
  • Reduce business complexity and streamline operations and structure;
  • Focus on core activities and processes and maintain critical roles;
  • Align senior leaders and managers’ tasks and responsibilities;
  • Manage uncertainty and resistance through regular communication; and
  • Stay agile and flexible during the restructure.

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