Restructuring opinion (IDW S 6)
An IDW S 6 restructuring opinion demonstrates whether a company can be restructured successfully. It tests three stages: ability to continue, competitiveness and ability to earn a return. Banks and shareholders require it as the basis for extensions, standstill agreements and new lending.
What it is needed for
When a company in crisis is to be financed further, the parties involved need a defensible answer to one question: does this still work? The restructuring opinion provides it in a form that banks, shareholders and credit insurers can rely on. Three uses dominate:
- Financing decisions. Extending existing facilities, standstill agreements, new loans.
- Protection for the lender. A restructuring loan without a viable concept exposes the bank to clawback and liability risk. The opinion is its evidence.
- Relief for management. It documents that at the time of the decision no ground for insolvency existed, or that the restructuring was viable – relevant to both civil liability and criminal exposure.
The three stages of restructuring viability
- Ability to continue. No grounds for opening insolvency proceedings exist and the company is financed through the restructuring period. This is the entry stage – without it, everything that follows is moot.
- Competitiveness. Profitability is restored to the point where the company can hold its own in the market under its own steam.
- Ability to earn a return. At the end of the restructuring period the company shows an equity ratio and a return in line with its industry.
What the opinion contains
Alongside the description of the engagement and the company, four components form the core: the analysis of the crisis stage and its causes, the target picture of the restructured company, the restructuring measures, and an integrated plan comprising profit and loss, balance sheet and cash flow.
The most underrated part is the analysis of causes. A concept that lists measures without deriving the causes properly is recognised by experienced credit decision-makers – and is not accepted.
The current version
The standard was adopted on 22 June 2023 by the IDW’s Restructuring and Insolvency Committee, noted with approval by the Main Technical Committee on 13 October 2023 and published in IDW Life 12/2023; it replaces the 2018 version. Newly addressed are sustainability and ESG aspects, cyber risks and digitalisation, as well as reflecting the tax consequences of restructuring measures in the plan. Supplementary questions and answers issued by the IDW on 20 May 2024 clarify that the ESG and cyber analysis is not an end in itself and is required only to the extent it is relevant to the restructuring.
What the finance function prepares
The opinion is produced by an auditor or a specialised adviser – but the data comes from the company. What should be ready: an integrated plan, a weekly cash flow forecast, reconciled balances, a clean three-year history and a substantiated schedule of one-off and exceptional items. The better this basis, the shorter and cheaper the exercise – and the more robust the result.
This entry is an overview, not legal or tax advice.