Restructuring
Restructuring is the planned reorganisation of a company whose earnings or liquidity no longer hold: operationally through costs, processes and portfolio, financially through capital structure and creditor agreements. In an acute crisis it turns into a formal turnaround (Sanierung), whose basis in Germany is a restructuring opinion under IDW S 6.
Restructuring and Sanierung
The two terms are often used interchangeably but describe different stages. Restructuring is reorganisation under the company's own steam, before its existence is at risk: costs, processes, sites, portfolio. Sanierung – the formal turnaround – begins when the crisis is acute and creditors have a say. Its basis is the restructuring opinion under IDW S 6, which banks and shareholders require before extending lines or granting new loans.
Operational and financial
Operational restructuring works on the business: cost structure, headcount, purchasing, product portfolio, sites. It changes earnings, but slowly – measures take months to show.
Financial restructuring works on the liabilities side: deferrals, extension of credit lines, subordination agreements, debt-to-equity swaps, fresh capital. It buys the time the operational measures need. Without the operational side it only moves the problem.
The sequence
In a crisis the sequence decides. First, liquidity is made visible: a rolling 13-week cash flow forecast on the direct method, with weekly variance analysis. Without that picture you can neither talk to banks nor judge whether the company can continue. Then room to act is created: payments prioritised, lenders approached, one-off effects documented. Only then comes the concept.
The legal boundary
In parallel runs the check of the duty to file for insolvency: illiquidity and over-indebtedness must be ruled out continuously, and the going-concern forecast must be documented. A company that is only imminently illiquid can, since 2021, use the StaRUG framework and push a restructuring plan through against individual creditors without insolvency proceedings. These duties stay with the managing directors; the documentation for them is produced in the finance function.
The data base
The restructuring concept is written by an auditor or a specialised adviser. The numbers, however, come from the company: an integrated plan of profit and loss, balance sheet and cash flow, reconciled balances, a clean three-year history, documented one-off and special effects. The better that base, the shorter and cheaper the opinion – and the more credible the company is to its creditors.
Typical mistakes
Starting too late because the crisis is first taken as temporary. Talking to banks before the weekly forecast exists. Deciding on measures without calculating their cash effect. And forgetting internal communication: staff, suppliers and customers learn about the situation anyway – the only question is from whom.
Who provides financial leadership
In a crisis the number of counterparties grows, and management is tied up in running the business. Duration, utilisation and day rates for a mandate covering this situation are set out under Interim CFO for restructuring and turnaround; all other situations in the overview.