Rehabilitation of an enterprise is a system of measures for the financial recovery of an enterprise. How to Avoid Bankruptcy

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:53

The procedure for reorganizing an enterprise implies a set of measures aimed at preventing a company from going bankrupt, improving its financial position and competitiveness. At the end of the procedure, the debtor enterprise receives financial resources that allow it to fulfill its monetary obligations and restore normal solvency.

When the procedure is performed

Situations in which the enterprise reorganization procedure is required are:

1. The company is trying to find ways to get outside help for the subsequent way out of the crisis. Creditors do not initiate bankruptcy proceedings.
2. The application submitted by the organization to the arbitration court indicates the fact of bankruptcy and proposals are made for the use of sanitation.
3. Judgment on sanitationaccepted on the basis of applications received from creditors of the debtor company.

Depending on the severity of the crisis situation and the criteria for providing financial support, the reorganization 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 the company with a change in legal status. The method is resorted to when the organization is in a hopeless crisis situation.

Improvement of the situation without changing the legal status can be carried out at the expense of allocated budget funds (for government agencies), a targeted bank loan (issued on the basis of an audit opinion), issuance of securities, preferential taxation, or transfer of debts to another organization that has agreed to participate in the rehabilitation of the debtor.

Remediation forms

There are several forms of enterprise reorganization. This is:

1. Merge. The debtor company merges with a more financially stable organization with the loss of legal status. Enterprises in one industry merge horizontally, in related industries - vertically. A conglomerate merger is a combination of companies that do not overlap.
2. Separation. It is used in relation to companies specializing in manufacturing diversified activities.
3. Absorption. When merging with the debtor company, the sanatoriumacquires a part of the assets and a set of property of a troubled company, which receives the status of a subsidiary and remains as a legal entity.
4. Re-registration into a joint-stock company. The decision is made by the founders, who must provide the authorized capital of the minimum amount provided for by the current legislation.
5. Privatization. Demanded during the reorganization of state-owned companies.
6. Renting out. The method is applied to state-owned enterprises transferred to members of the labor collective simultaneously with debts.

Financial analysis

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 activities. The calculation of the value of current assets, the total value of property, invested in property of borrowed and own funds is carried out according to the balance sheet.

During the financial analysis of the enterprise, receivables and payables are disclosed, the company's solvency and liquidity are studied at the beginning and end of the reporting period. The relationship with the main suppliers, their willingness to cooperate and support the restructuring carried out are being considered.

The liquid assets of the enterprise and the degree of their sufficiency / insufficiency to meet the requirements of creditors, within the established agreementstiming.

Key liquidity indicators are determined based on the balance of the debtor's accounts and the amount of debts on any type of loans.

All types of costs are analyzed to determine the possibility of their further use, sale or lease. The commission identifies the amount of available raw materials, wearing and low-value items, fuel and other material and commodity assets that are not related to the production process.

Members of the commission of the center for the financial recovery of enterprises, based on the information obtained as a result of the analysis, draw conclusions and prepare proposals on the methods and forms of reorganization, material, technical and financial sources of resources for the subsequent implementation of projects.

Remediation methods

Depending on the severity of the crisis, measures are chosen to prevent bankruptcy and liquidation. Solvency is restored in two ways: defensive and offensive.

Defensive method

When using a protective method:

• Retrenchment and investment.
• Strengthening enterprise structures.
• Liquidation of unprofitable industries.
• Decrease in production.
• Reorganization of the balance sheet, independently carried out by the enterprise.

Offensive method

The method includes several techniques:

• Extensionworkforce and production volumes.
• Modernization of production and technical processes.
• Introducing new technologies that are economically beneficial.
• Increase in the range of services and goods.
• Developing new markets.
• Improve the quality of service or product.
• Increase competitiveness.

Creditors or the arbitration court decide on the application of a specific method based on the financial and economic analysis of the enterprise.

Items of the enterprise rehabilitation plan

The debtor company, together with creditors, draw up a pre-trial resolution plan, which includes:

• Information about the current economic and financial condition and structure of the organization, the presence of branches and enterprises, their legal status.
• Goals of reorganization and measures that will be taken to increase the level of solvency of the company (sale and leasing of property, restructuring, elimination or re-profiling of unprofitable industries, staff reduction, changes in loan terms), time frame for their implementation.
• Calculation of the financial amount required for the planned procedure.
• Determination of sources of funds for the implementation of measures aimed at financial recovery in case of bankruptcy, including the obligations of creditors or investors, budgetary resources, bank loans.
• Exploring the terms under which lenders and investorsagree to take part in pre-trial rehabilitation: rent or purchase of property and funds of the company, transfer of creditor claims and debts to investors, disposal of part of the products.
• The consequences of the implemented action plan for the rehabilitation of the enterprise are the projected losses and profits, the migration of funds in the reporting period.

After receiving an approving assessment of creditors, the plan drawn up is sent to the economic court for approval. The issue of bankruptcy of the organization is raised if within six months from the date of the decision to reorganize the plan was not submitted for approval to the court.

Consequences of the rehabilitation procedure

Maximum period of pre-trial sanitation is one year. The authorized body in certain situations may extend it for no more than six months.

Creditors receive a report and a list of requirements from the manager two weeks before the end of the sanitation procedure. To consider the report, a meeting is convened, making one of the following decisions:

1. Fulfillment of the drawn up plan, including the search for investments, and completion of the procedure aimed at restoring the creditworthiness and solvency of the organization.
2. Submission to the court of a petition for early termination of the process due to the restoration of solvency and the beginning of settlements with creditors; prolongation of the rehabilitation period; recognition of the bankruptcy of the company and initiation of the liquidation of the legal entity.
3. Conclusion of a world decision.

Rehabilitation is consideredSatisfactory if, following the results of its implementation, the performance indicators of the organization indicate an increase in liquidity, the presence of profitability, solvency, that is, the end of the financial crisis.