Analysts are predicting a challenging year for many business owners. So what does this mean for you?
Picture that you are running a business. You’ve just had your worst quarter in 10 years; you’ve lost a top client to a rival firm. Key staff members have resigned, and your other employees are suffering from a general malaise. On top of that, the Canada Revenue Agency reassessed you for outstanding back taxes.
But you know that you can make this business work. If only you could stop the clock and give yourself time.
For many, the phrase corporate restructuring conjures up images of mass layoffs and elimination of departments. However, ‘restructuring’ should actually be viewed as a careful cutting and pasting rather than a massive gutting. Restructuring presents business owners with the opportunity to reorganize operational and legal structures, and sometimes ownership, for the sake of the company’s future.
In fact, many corporate restructuring’s involve no staff or department terminations. The key notion toward any restructuring plan implies the continuation of the company, regardless of size. Essentially, a restructuring plan buys a company time to re-evaluate processes and recover.
Our group has assisted companies ranging from five to 500 employees. Most clients experience common problems for which there are easy solutions. Our analysts review each aspect of the company and suggest a ‘turnaround’ or ‘workout’ plan that is tailored to the company’s specific needs.
Once a plan is agreed upon, a receiver needs to be appointed by either the directors of the corporation or one of its major creditors. The receiver is an equivalent to a legal guardian for the company. Once the court approves the appointment, the company is now in the legal care and oversight of the receiver.
Appointing a receiver protects the company. The receiver oversees the commencement of any legal proceedings and service cancellations, such as telephone numbers or electricity. In addition, vendors and suppliers are prohibited from discontinuing their services to the company.
Furthermore, the receiver is empowered to collect all funds owed and to employ all existing employees. But most importantly, all the pre-receivership debts are placed on hold until the receivership has been finalized.
With the receiver having dealt with the immediate problems, the company is able to continue with the day-to-day operations under the receiver’s guidance. While this is happening, the receiver works toward a more finite solution to assist the company for the long term. The solutions normally available to a company are:
- Conducting a formal sales process under the receivership to source new investors or ownership;
- Performing a formal reconstruction, during which Corporation A is wound down via a bankruptcy filing, and Corporation B is opened to continue the operations; or
- Filing a proposal to settle all outstanding liabilities.
Originally published in the Spring 2013 issue of Comments.
This article has been prepared for the general information of our clients. Specific professional advice should be obtained prior to the implementation of any suggestion contained in this publication.
