An underperforming business does not always equate to a bad business.
We understand that at some point during their lifecycle, most companies will undergo periods of declining performance and face various challenges to its future viability.
A Turnaround is one such method to assist Business Rescue and support business owners and interested parties to prevent closure or stabilise a struggling business by making the necessary changes to lead to sustained improvements and growth.
We have seen particularly with COVID 19 that a downturn in market conditions present a whole new set of challenges for businesses. At Lucas Ross we operate whereby we can review strategy, business operations and finances and bring recommendations quickly and with certainty, often in days where cash is running out. Acting fast and taking swift actions can often be critical. Lucas Ross specialise in assisting business leaders and their staff who will often be way outside of their comfort zone and faced with worry, anxiety and stress both at work and at home need that custom advise, support and expertise.
Director duties can quickly change from rewarding the shareholders to protecting the creditors in a turnaround environment. The fair treatment of creditors needs to be well understood. The Companies Act 2006 needs to be interpreted alongside the Insolvency Act 1986. The concepts of “going concern” and “look forward tests,” often taken for granted, become critical issues and need to be fully appreciated. Valuation assumptions change. Preference law emerges as a guiding principal over the fair distribution of assets. The “twilight zone” of uncertainty becomes a director’s guiding principle; this is what to do during the period where a company is technically insolvent but where it is right to “trade on” for the benefit of all creditors.
Insolvency is often used as a valid turnaround tool where the corporate entity is so distressed that it will never be able to recover. Phrases such as “phoenixing” or “pre-packaged” insolvencies whereby a business is resurrected through a new company enables business owners to fulfil their duties to do the best for their creditors. Alongside our support we can work together to identify underlying challenges before creating and executing a solid turnaround plan to affect the company’s financial recovery and improve its operational performance.
This process could involve corporate simplification to rid the organisation of unprofitable assets, restructuring existing debt obligations, or looking at ways to improve immediate and long-term cash flow. Regardless of the method implemented, this must be done with a firm eye on protecting shareholder value and sustaining support and confidence from key stakeholders throughout the process. In crisis situations we can place an interim management team to steady the ship and maintain internal relationships while the company’s turnaround is achieved.
Once a business has been stabilised and its value restored, the next phase is to implement a sustainable growth strategy with the aim of increasing profitability and improving operational performance ensuring the company has a viable future