The reorganization procedure of an enterprise implies a set of measures aimed at preventing the bankruptcy of the company, improving its financial situation and competitiveness. The debtor company at the end of the procedure receives financial resources to fulfill its financial obligations and restore normal solvency.
When is the procedure
Situations in which the reorganization of the enterprise is in demand are:
- The company independently tries to find ways to get outside help for the subsequent exit from the crisis. However, creditors do not initiate bankruptcy proceedings.
- In the application submitted by the organization to the arbitration court, the fact of bankruptcy is indicated and proposals on the use of reorganization are made.
- The judicial decision on reorganization is made on the basis of applications received from the creditors of the debtor company.
Depending on the severity of the crisis and the criteria for providing financial support, the rehabilitation of the enterprise provides for:
- Reorganization of the enterprise in the process of reorganization without changing the legal status. Option applicable in a temporary crisis to restore solvency;
- Reorganization of a company with a change in legal status. The method is resorted to in a hopeless crisis situation of the organization.
Improving the situation without changing the legal status can be carried out through allocated budgetary funds (for government agencies), a targeted bank loan (issued on the basis of an audit report), the issue of securities, preferential taxation or the transfer of debts to another organization that agreed to participate in the reorganization debtor.
Remediation Forms
There are several forms of reorganization of the enterprise. It:
- Merge. The debtor company merges with a more financially stable organization with a loss of legal status. Enterprises of one industry merge horizontally, in related industries - vertically. Conglomerate merger - a combination of companies that do not intersect.
- Separation. It is resorted to in relation to companies specializing in industrial diversified activities.
- Absorption. When combined with the debtor company, the sanatorium acquires part of the assets and property complex of the troubled company, which receives the status of a subsidiary and is retained as a legal entity.
- Re-registration in a joint-stock company. The decision is made by the founders, who must provide the authorized capital of the minimum amount required by applicable law.
- Privatization. It is in demand during the reorganization of state-owned companies.
- Rental. The method is applied to state enterprises transferred to members of the labor collective simultaneously with debts.
The financial analysis
A financial analysis before the reorganization of an enterprise is a procedure carried out by a specially assembled commission aimed at studying the economic and financial condition of the debtor company based on indicators of its property status and activity. The calculation of the value of current assets, the total value of the property invested in the property of borrowed and own funds is carried out according to the balance sheet.
In the course of the financial analysis of the enterprise, receivables and payables are revealed, the solvency and liquidity of the company are studied at the beginning and end of the reporting period. Relations with the main suppliers, their willingness to cooperate and support the restructuring are examined.
The liquid assets of the enterprise and the degree of their sufficiency / insufficiency to satisfy the requirements made by the creditors are determined within the time period established by the contracts.
The main liquidity indicators are determined on the basis of the debtor's account balance and the amount of debts for any types of loans.
All types of costs are analyzed in order to determine the possibility of their further use, sale or lease. The Commission identifies the amount of available raw materials, wearing items and items with low value, fuel and other material and commodity values that are not related to the production process.
The members of the commission of the center for financial rehabilitation of enterprises on the basis of the information obtained as a result of the analysis, draw conclusions and prepare proposals on methods and forms of reorganization, material and technical and financial sources of resources for the subsequent implementation of projects.
Remediation Methods
Depending on the severity of the crisis, measures are taken to prevent bankruptcy and liquidation. Solvency is restored by two methods: defensive and offensive.
Protective method
When using the protective method:
- Staff reduction and investment.
- Strengthening enterprise structures.
- Liquidation of unprofitable production.
- Decrease in the volume of production.
- Balance reorganization independently carried out by the enterprise.
Offensive method
The method includes several methods:
- Expansion of working staff and production volumes.
- Modernization of production and technical processes.
- The introduction of new technologies that are economically advantageous.
- Increasing the range of services and goods.
- The development of new markets.
- Improving the quality of service or products.
- Increased competitiveness.
Creditors or the arbitration court decide on the application of a specific method on the basis of a financial and economic analysis of the enterprise.
Remediation Plan Items
The debtor company together with the creditors draw up a pre-trial rehabilitation plan, which sets out:
- Information on the current economic and financial condition and structure of the organization, the presence of branches and enterprises, their legal status.
- Reorganization goals and measures that will be taken to increase the company's solvency (selling and leasing property, restructuring, eliminating or reprofiling unprofitable enterprises, reducing staff, changing loan terms), the time frame for their implementation.
- Calculation of the financial amount required to carry out the planned procedure.
- Determination of sources of funds for the implementation of measures aimed at financial recovery in bankruptcy, including - obligations of creditors or investors, budgetary resources, bank loans.
- Studying the conditions under which lenders and investors agree to take part in pre-trial reorganization: renting or acquiring company property and funds, transferring creditor claims and debts to investors, disposing of part of the products.
- The consequences of the completed action plan for the reorganization of the enterprise are the projected losses and profits, the migration of funds in the reporting period.
After the approval of creditors, the prepared plan is sent to the economic court for approval. The bankruptcy of the organization is raised if, within six months from the date of the decision on reorganization, the plan was not submitted to the court for approval.
Consequences of the rehabilitation procedure
The maximum term for pre-trial rehabilitation is one year. The authorized body in certain situations can prolong it for no more than six months.
Lenders receive from the manager a report and a list of requirements two weeks before the end of the rehabilitation process. To consider the report, a meeting is convened that takes one of the decisions:
- The implementation of the plan, including the search for investments, and the completion of the procedure aimed at restoring the creditworthiness and solvency of the organization.
- Submission of a petition to the court for early termination of the process due to the restoration of solvency and the beginning of settlements with creditors; extension of the period of rehabilitation; recognition of the bankruptcy of the company and initiation of liquidation of the legal entity.
- The conclusion of a global solution.
Remediation is considered satisfactory if, based on the results of its conduct, the organization's performance indicators indicate an increase in liquidity, the presence of profitability, solvency, that is, the end of the financial crisis.