Restructuring — the supreme discipline in corporate management
In the industry (of restructuring consultants), a significant increase in the number of cases is already apparent. This trend will continue to strengthen in the second half of the year and in 2013 due to the economic situation. In contrast to the “broken LBOs,” the current cases are almost invariably characterized by a strategic or operational defect. Therefore, pure financial restructuring is usually not enough; these situations sometimes require significant cuts in terms of strategy, management, ownership structure and corporate governance. Special topics are “Real Estate” and “Shipping”, which are now being addressed much more aggressively by the banks concerned. In the medium term, we therefore expect significant growth in the restructuring market and further increasing interest in German assets from internationally active distressed funds.
If, in the course of a restructuring, the shareholder is unable to fulfill his function, in particular the provision of risk capital, the creditors often demand a change in the exercise of the control functions. This is usually accompanied by the relinquishment of potential economic benefits if equity returns to value. Classically, banks require the appointment of a trustee who assumes the shareholder role in what is usually a dual-purpose trust and manages the liquidation of the business.
We also see an increasing willingness on the part of German banks to follow the Anglo-Saxon model and assume the role of shareholder on their own responsibility or in synthetic structures within the framework of a debt2equity swap or similar, also synthetic structures. The concrete design depends strongly on the individual conditions and is possible in many variations. We have been instrumental in developing and implementing these structures with various houses.
Leading the management team and replacing or strengthening the team when necessary is key to the success of any restructuring effort. Provided that the company crisis is not only due to market factors but also to management failures, the existing team often leaves the ‘goat the gardener’. Nevertheless, it is often not possible to replace the old management for a variety of reasons. Therefore, leadership and control from the supervisory bodies and/or from an operational management role is an absolute prerequisite for success. For this reason, we generally recommend that financial restructuring be linked to appropriately adapted corporate governance and we also play this role in the corporate bodies.