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BUSINESS IN DIFFICULTY (SOLUTIONS (focus on collecting debtors, dispose…
BUSINESS IN DIFFICULTY
FINANCIAL DISTRESS
fall in share price, plant closings/layoffs
mng changes + director resignations, dividend cuts
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reduction in R+D, operations restructuring
[1] How firms manage it?
pref share + convertible securities issues, liquidate/wind up
compromise w/ banks + creditors, equity in exchange for debt
merge, implement rights issue, suspend dividends
sale + leaseback, sell non-core assets
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auditor changes & adverse opinion, using fin failure models
BUS. RESCUE VIABILITY
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SH's incentive to delay bankruptcy
pre-packaged business rescue
- major creditors arrange it
Creditor's incentive to protect (A) value
WORKOUTS
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vs Business Rescue
moratorium on claims against Co, right to
suspend & cancel contracts
enables co-ordination of Creditors, info shared w/ ALL parties
FURTHER CAUSES
poor share price performance, increased competition
Rand strengthening for exporters, relying on few customers
high debt lvls during recession, low proceeds from (A) sales
high interest rates, fuel, commodity price, property rentals, pension liabilities, electricity costs
expand into non-core businesses, not adapting w/ tech
poor acc system, can't handle growth
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SOLUTIONS
focus on collecting debtors, dispose poor performing divisions
defer cap expenditure, cut dividends
sell non-core (A)s, reduce inventory
rights issue, comm financing + operating decisions to banks
analyse + reduce costs, change CEO
restructure loans, sale + leaseback
implement business rescue, prep CF forecast
joint ventures, invest in new tech
focus on core competencies, plan for growth
avoid focus on vols + market share, monitor key customers
ADVISING A CO.
[Causes of fin. distress]: differs among Cos, refer to "further causes" branch, link to Strategy
[Identify]: ratio analysis, CFs, trends, failure prediction models
[Gen. actions]: act early, understand Co Act responsibilities, talk w/ Stakeholders to understand mngmnt has credible plan