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Newhouse Partners Inc., Oakville Ontario, info@newhousepartners.com, www.newhousepartners.com
How to Fund and Re-organize During an Economic Downturn
The Experion Group, March 24th, 2010
Shayne TracyFlorian Meyerrevitalize, reposition, rebuild
3 www.newhousepartners.com
Agenda
Opportunities??
Bankruptcy Proposal
First Step - Creditor Proposal Process
Potential Second Step - Going Bankrupt
When to Restructure
Newhouse Partner’s Process
Case Study Results
Questions
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Opportunity – Lost??
Here is the background on one of our clients:
Company was not performing well
Bank sent loan account to Special Loans and the loans had been called
Had not paid CRA for sometime-CRA have closed the company bank accounts
Were not paying the suppliers
Not delivering products on time
Product quality was slipping
Only one main customer
Business had no organization structure
All doors lead to the owner
Partner ejected from business due to alleged Fraud
WHAT’s NEXT??
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Why Use the Bankruptcy Process??
The Bankruptcy Process is potentially a two step process.
First Step is to engage a Trustee and start the Creditor Proposal Process (NOI)
This stops all credit proceedings, such as creditor collection and CRA closing of the company bank accounts
Gives the company time to reorganize and make a proposal to creditors
Frees up cash flow, collect AR to pay the current AP and restructuring costs
Gives a minimum of 30 days before needing to call a creditor proposal meeting
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Creditor Proposal Process
File with courts the NOI
Within 10 days file a cash flow for the business
Trustee will notify the creditors that a Creditor Proposal is being prepared which stops the historical collection process
Do not pay any historical payables
Must stay current with all current liabilities
Negotiate a deal with secured creditors – likely a bank – Forbearance Agreement
By 30 to 45 days issue a Proposal to creditors and establish a date for the Proposal to be reviewed and voted on by the unsecured creditors
Offer unsecured creditors 10 to 20 cents on the dollar paid over a number of years.
Call the unsecured creditors and encourage them to support the proposal
Continued…..
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Creditor Proposal Process Continued
With Unsecured Creditor Approval next seek Court approval
Entire process could take up to six months
Once court has approved, creditors will start to received funds
At this point CRA – source deductions must be paid-off within six months
Could use SR & ED Tax Credits to help pay-off the source deductions
Alternative If they do not approve the process the company is put into
bankruptcy
Under the latter option the unsecured receive nothing
This would start the second step
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Benefit of Creditor Proposal Process
Company given time to rethink strategy
Time used to develop go forward plan
The Accounts Receivables used to fund the business going forward, almost like an equity injection
Gives the CRO and restructuring team to review the business
Identify the operational, human resources, sales and marketing issues
Develop steps and structure to correct these issues
Work with the team to ensure the entire structure will support the business
Work with all stakeholders to ensure the entity will success
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What Happened With Our Client
Evaluated all of the senior and mid level staff for “fit”
Moved or changed out the staff that were not a fit
Created an transition management team
Started to establish operating structure for the business
Strengthened the Sales Team to expand beyond one main client
Had bi-weekly town-hall meetings with all the staff
CRO controls finances and expenditures
Results:
AR current
Deliveries on time and quality greatly improved
Company started to work like a well oiled machine
Started to deliver to two additional clients
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Second Step - Going Bankrupt??
Creditor do not support company or
Company can not pay the creditors
Next Step:
Them company goes bankrupt
Trustee must sell the assets to the highest bidder
CRO could work with the Trustee to make an offer for the assets
If successful this would allow operating entity and its assets to move to a clean new entity with no debts
Results:
All debts gone
Fresh start for the business
Original owner most likely also had to go bankrupt
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The Newhouse Partners Difference
Our experience suggested a broader solution is required
Restructuring provides a window of opportunity to address fundamental issues within the four pillars of the business model finance human capital marketing & sales operations & technology
Goals include: improving long term cash flow understanding the core issues of the business addressing these core issues with relevant disciplines enhancing profitability increasing corporate value
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When to Consider Restructuring
10 Key questions for the CEO:
Is your financial performance less than what is expected?
Is the direction of the company clearly understood by all stakeholders?
Are the company's current strategies working?
What strategic issues need to be addressed?
Do customers and employees understand the company's value stream?
Is the company responding to market and customer demands and needs?
Does the company have a culture of discipline and performance?
Is management executing well? Are they leaders, not mere managers?
What is the depth of technical and people skill of management and staff?
Does the company have the right people in the right place doing the right things? (Jim Collins Good To Great book)
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Start the Process
proactive and coordinated across four pillars
multi-directional stakeholders employees clients creditors government
Communication is the fundamental mechanism for enabling, coordinating and managing change:
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0-30 Days: Stabilize
Cash Flow and Financial Planning
Marketing and Sales Review
Human Capital Inventory & Assessment
Operations & Technology Evaluation
Stop the bleeding, stabilize operations and understand the issues:
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30-60 Days: Plan
Develop an 18 Month Business Plan
Define Market Strategy
Organizational Development
Operations & Technology Planning
Establish a go forward strategic plan:
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60-90 Days: Rebuild
Financial Optimization
Sales Planning and Program Implementation
Restructure, Realign, Team-build and Recruit
Operations & Technology Streamlining
Operationalize the strategy and rebuild the organization:
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90 Days+: Transition
operations stabilized
ramp-down period (3 to 6 months typical)
client management team populates executive roles
Transition operations to client management team:
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Case Study: Custom Manufacturer
Symptoms
over promising/under delivering
cash flow challenges inability to attract “new name” clients unpaid suppliers employees not being paid on time disgruntled creditors
Problems
unclear vision
risk averse (analysis paralysis)
poorly defined market strategy
lack of management depth
operations focused on customization and not creating a standardize product
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Case Study: Custom Manufacturer (cont’d)
reduced creditor debt by $1.5 million
wide-scale skills realignment
Finance
HumanCapital
Marketing& Sales
Operations
shifted from sale-driven to market-driven implemented "manage earnings" and
"invest to build" strategies
cash flow positive
instituted a multi-level communication plan transitioned founder to sales & changed some of the senior management
refocused market strategy
Developed company structure to ensure many hands participated Each area of the business was
structured to enable each staff person to know their entire job and process structure
new external funding
first new-name sale in years
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Case Study Summary
Restructuring provides a window of opportunity to address fundamental problems within the four pillars of the business model finance human capital marketing & sales operations & technology
Benefits include: improving long term cash flow renewed focus on the business clear go forward strategy time to establish the corporate structure enhancing profitability increasing corporate value
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Meet the Team
Specializes in financial crisis management with specific experience in corporate leadership, finance, controllership and treasury functions.
Sought out by mid-sized companies for his insightful identification of recovery opportunities and his pragmatic approach to leading corporate turnarounds.
25 years experience
Specializes in assessing the people talent pool (attitudes, competency, behavior and values).
Designs effective organization structures
Known for making tough but fair people decisions to ensure the right people are in the right positions for corporate growth and profitability.
25 years of experience
Florian Meyer MBA, CA
Finance Practice Leader & CRO
Shayne Tracy Ph.D.
Human Capital Management Practice Leader
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Summary
Optimized Stakeholder Value a multi-disciplined approach addresses the root
cause of the problem, not just the symptom
Speed of Recovery Transform90TM
methodology
Results Oriented implement what we
recommend results-based fee
structure
Reduced Risk seasoned senior management team with hands-on operating
experience proven track record revitalizing distressed companies large resource of professionals within The Experion Group
Newhouse Partners Inc., Oakville Ontario, info@newhousepartners.com, www.newhousepartners.com
416-873-8684
revitalize, reposition, rebuild
Questions!!
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