Restructuring and turnaround services can produce great benefits as long as the company recognizes early enough that it has problems. As the holidays approach, we want to hear feel good stories. Here is a great feel good story.
There are good news financial stories out there and here is one from the files of Ira Smith Trustee & Receiver Inc. If caught early enough, we can save companies and jobs through corporate restructuring and turnaround services, and avoid bankruptcy.
The Company: Professional services company which had been in business for 16 years and was in need of restructuring and turnaround services.
Hard Assets: Negligible.
How The Company got Into Trouble: The principal’s husband was travelling on business for an extended period and she decided to take leave from her business. Rather than using technology, both new and old, to supervise the business while travelling and maintaining financial control throughout, she delegated all responsibility to senior management and senior staff. In the principal’s absence the senior management made a series of decisions that put the Company in serious jeopardy:
- They leased extra space expecting the need to hire more staff to meet the anticipated increased business, but that business never came.
- Their rent and staffing costs were too high.
- Notwithstanding the increased staffing and staffing costs, they also outsourced more work than before.
- The total costs and liabilities were increasing rapidly while revenue was declining.
- They neglected to pay the payroll source deductions throughout and a secured claim to CRA arose in excess of $500,000.
Through a combination of incompetence and foul play, the senior management and staff encumbered the business with too much debt and had created a situation where many of the firm’s top clients were about to bolt. Without the intervention of a well planned yet swiftly implemented restructuring and turnaround plan, the company would surely die.
Upon the principal’s return, she sought the advice of her accountant and lawyer and was referred to us. The principal suspected the senior management’s actions were taken with a view to harm the company so that certain members of the senior management team could start their own firm and take certain staff members with them. It became clear to us that this company was a candidate for a restructuring and turnaround, not a candidate for bankruptcy. Working with the principal, we quickly devised and began implementing the restructuring and turnaround using a Proposal under the Bankruptcy and Insolvency Act (Canada) (“BIA”).
Restructuring & Turnaround: The Company was in the BIA Restructuring and Turnaround Mode for about 1.5 years.
- The principal worked very diligently through the Proposal process to maintain the trust of key customers.
- She was able to give back a portion of the premises to the landlord, thereby reducing premises leasing costs.
- She terminated unnecessary staffing, including those senior staff that was responsible for the decline of the company. The staff did launch a wrongful dismissal suit but that litigation was settled within the Proposal process.
- After about 1 year the Company was able to change Banks and obtain a more favourable financing package.
The restructuring and turnaround plan was in place and working!
The Result: Through the Restructuring and Turnaround Proposal, the company was able to amass sufficient cash to pay off in full the source deduction trust claim in excess of $500K and they successfully completed their Proposal by paying an additional amount of $250,000 to compromise $1.2 million of unsecured debt. The Company to this date continues to operate profitably, provides employment and also contributes in other ways to the community. The restructuring and turnaround plan worked!
Serious financial problems don’t have to mean the end for a company. There are solutions other than bankruptcy. Corporate restructuring and turnaround is one of them. Contact Ira Smith Trustee & Receiver Inc. today. If caught early enough, we can save companies and jobs through corporate restructuring and turnaround services, and avoid bankruptcy Starting Over, Starting Now.
Are you, or your company in need of a restructuring and turnaround? If so, don’t procrastinate; contact Ira Smith Trustee & Receiver Inc. now!