A leading group of companies in the tertiary sector proceeded in merging its activities with other similar companies in the industry to form a new legal entity and list on the Stock Exchange. After proceeding with the merge, all the sub-merge companies' lendings were transferred to the new legal entity formed.
Despite all the efforts, the new legal entity did not manage to enter the Stock Exchange. As a result, its operational activities started overlended and in a deterrent financial position.
Even though the company had positive turnover results, its operating profitability was insufficient to cover the lending instalments due to overlending. Its incapability to pay the instalments critically affected its financial position since the company realized losses deriving mainly from the financial expenses of each year. Furthermore, the carried forward losses caused significant reductions in the company's liquidity, which raised the need for additional lending creating a vicious cycle of losses and debts. In order to cover its liquidity problems, the new entity had finances from six (6) different banking institutions.
Until 2010, the company was able to cover to a large extent its loan obligations, but after this period, it joined the non-performing loans reaching an overdue amount of approximately €18 million.
The company made many restructuring attempts via cooperation with various professional financial services firms to tackle the problem. Unfortunately, it did not receive the expected outcome due to the ommissions of important banking provisions and intercompany policies and procedures.
As years went by, the company's problem increased, creating an unfavourable situation for all parties involved, causing severe implications in the company's operations and viability.
The inability to raise sufficient liquidity and the problems of financial robustness led the company to an unpromising situation with the following main characteristics:
- Improper servicing of its financial obligations resulting in the creation of additional debts deriving from bank charges
- Delayed payments and accumulations to public debts
- Lawsuits from four (4) banking institutions that made the business operations even harder
- Decrease in its business activities caused by the lack of working capital. The working capital shortage did not allow the company to further consolidate in its sector and be competitive in large scale projects published by public and private organizations
- Increase of sales costs due to margin shortage for additional discounts from suppliers
- The managerial staff spent all of its time and effort striving to raise the company's liquidity, negotiating suppliers' payments and debt collecting, rather than engaging in the company's development
Gradually, the company's sales decreased in 7 years time more than 65%.
Appointment of RSM
The appointment of RSM Cyprus included, amongst others, the following targets:
Provision of consulting services aiming at the immediate improvement of the company's financial results.
The objectives set by the RSM professional team for the successful consolidation, reconstruction and reorganization of the financial results were as follows:
- Increase in sales
- Implementation of operating costs constraints and identification of non-recurring expenses
- Increase of profitability
- Determination of costs and identification of the maximum amount per expense category
- Operating costs reduction, without affecting the business operation
- Adopting procedures aiming to achieve the best possible performance that would tackle the liquidation problems and make the company workable
Provision of business advisory services intending to consolidate, restructure and reorganize the company's procedures.
- Loan restructuring with all six (6) banking financial institutions
- Improvement of company's liquidity and working capital
- Settlement agreements with the preferential creditors (VAT, social insurance etc.)
- Identification of appropriate financial repayment periods that would operate within safety margins according to the projected cash flow
- Determination of ideal overdraft limits that would comprehensively cover the payments deferrals while at the same time would initially enhance the liquidity of the company
The client accepted all of our advisory proposals with immediate effect.
Due to the direct intervention and implementation of our consolidated restructuring and reorganization proposal, the company successfully recovered and tackled all of its financial problems that, if not solved, would have led with mathematical accuracy to bankruptcy.
Indicatively, based on the company's audited accounts of the prior year, the company had recorded sales of €4 million and net profit after taxes €27 thousand.
After our appointment and the implementation of our proposals, sales increased by €5 million next year's audited accounts and net profit after taxes to half a million.
Percentage-wise, after implementing our suggestions, the company had a 27% increase in sales and a net profit after taxes increase of 18 times in only one year.
In addition, the company's total loan amounted to €18 million, decreased by €15 million after the write-off we accomplished, reflecting a percentage-wise reduction of 81.5% of the total borrowing.
The remaining amount of €3 million of the loan followed a ten-year repayment schedule, and it was within the safety margins set according to the projected cash flow.
Moreover, the banking financial institutions were reduced from six (6) to two (2) to control the loans better.
Furthermore, we arranged an overdraft facility to enhance the working capital and business development.
We made settlements with all the privileged creditors to accomplish cash flow normalization without affecting the company's liquidity, following a five–year repayment plan.
Finally, the banking financial institutions withdrew the lawsuits after the aforementioned restructures and settlements.
Overall the reorganization and restructuring procedure lasted three (3) years due to its complexity, the large number of banking financial institutions involved and the numerous accumulated debts to privileged creditors.