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A corporate lifeline: for businesses in distress, there are still options

A corporate lifeline: for businesses in distress, there are still options 1

By  Liz Pinnock, Director, RSM South Africa and Marco Carlizzi, Partner, RSM Italy PLG

In the world of modern business, it is natural that some organisations reach a point where they are forced to make hard decisions in order to keep the lights on. Whether it is due to debt, mismanagement, fraud, malpractice, or simply a failure to adapt to changing market trends, sometimes a business faces a crisis from which it cannot come back – at least, not without a little help. That is where corporate restructuring comes in.

The process of restructuring involves bringing in objective professionals who have experience in helping distressed businesses make the transition from crisis to long-term survival. Although, this idea is not new, the current economic climate has definitely made it a much more common occurrence. Covid-19 has thrust us into a world where businesses that were perfectly healthy and even thriving just weeks ago are being forced to take drastic action to simply survive.

Opening the door to a new way forward

For many companies, Covid-19 has stretched cash flow to its absolute limit. More alarmingly, distressed businesses may have to face the harsh reality that restructuring may be the only option left available to them.

However, restructuring is not always a crisis option. According to Marco Carlizzi, Partner, RSM Italy, there are two types of companies that are in a position to restructure. ‘In some cases, the business is operationally sound, but is experiencing pressures to save costs, streamline operational efficiencies, and optimise the business’, says Carlizzi. ‘Or you have what we’re seeing a lot of right now, which is a business that is financially distressed, and must either sell parts of the business, reduce staff, and reduce expenses to survive’.

Either way, it is important to look at the value that restructuring can bring, outside of the usual colloquial business jargon. On paper, restructuring can create a new way forward, a lifeline if you will, for businesses experiencing financial pressures. But there is a far greater impact. For businesses that are financially distressed, restructuring can offer a second chance.

The process begins

Corporate restructuring is complex and requires deep analytics of number of different aspects of the business, including robust financial data, economics, and tax and legal implications. In practice, if a business is looking to go through a restructuring process, the first thing they will be asked to do is to prepare and provide access to financial data.

Once that has been established, a restructuring adviser will typically:

  • Conduct a thorough examination of the organisation’s consolidated financial statements
  • Gain an understanding of the business’ group shareholding structure
  • Analyse funding between the companies (intragroup)
  • Determine if there’s an opportunity to apply corporate restructure rules under various tax legislations

The end game is to restructure the company on a tax neutral basis. If achieving tax neutral status is not in the cards, then the restructure becomes much more complex.

Once an adviser gains an understanding of where a company currently is, how do they help them get to where they want to go? Firstly, there are two questions that must be answered – what do the balance sheets look like now, and what do we want them to look like? The answers to these questions will inform the adviser as to what kind of transaction the business should pursue. Is it a merger of entities? Some form of share transaction? Once the desired result is agreed upon, then the adviser can guide the business through the process of implementing a legal framework.

Next steps

More often than not, an adviser will draft a position paper for the board. This paper will articulate the purpose of the restructure and how it will be achieved, including timelines, deliverables, and a cost/benefit ratio. This usually ends up being a substantial document for the board, designed to help them apply their minds, and it is best practice to provide two or three options.

In some instances, advisers may suggest triggering tax relief, whereas other times a business may not be in a position to do so. Often, advisers have mapped out the various options for a business, and from a legal perspective there may be a suite of agreements that support them. Once the board has considered and selected their preferred option, their legal adviser will draft all agreements (including tax clauses). The CFO of the business will provide the legal adviser with financials to support the agreements. In perfect synchronicity, the entity and its tax, business and legal advisers will need to deliver on all the agreements, from day one opening figures, stock, assets, and employees.

One of the legal ramifications is that if it is related to employees, all employee contracts will need to be re-drafted and signed. If it is a share transaction, then the business may have to consider change of control provisions.

The intangibles

There is a strong emotional element to restructuring. After all, this can be a heavy task for an organisation. There is a high level of complexity to navigate when examining a business down to its nuts and bolts. There is also an enormous amount at stake, and everyone in the room knows it. An organisation in the restructuring process is fighting for its life, and the people involved have likely poured a lot of their time, energy, and in many cases, even their love, into it.

‘Imagine you are telling an entrepreneur that their dream has failed’, says Carlizzi. ‘It can be emotionally exhausting for both parties. Many times, they are resistant to admit it’s over. The best you can do is encourage them to see that it’s not the end of the world, and then do what you can to help them reduce their liability’.

For businesses going through this process, it can be a very stressful time. A seasoned adviser is emotionally supportive. They are good communicators. They are good listeners. They will conduct regular discussions with their client to gain a better understanding of the fears and tensions they’re experiencing on a daily basis. It is their job to earn their client’s trust and help them rebuild their confidence – not just in the current state of their business, but in the future of their business as well.

Furthermore, if there is a merger involved, the work does not stop once entities have merged. In many cases, that is when the real work begins. A good adviser helps their client facilitate the cultural alignment of the business and helps employees from both entities to work better together.

Communication is key

The fundamental truth about restructuring is this – even though these negotiations typically involve analytical thinking, the best outcomes are born through creativity and an innovative mindset. There is a lot of problem solving involved to achieve the desired outcomes.

Businesses in restructure mode must be transparent, and their advisers must be available to support them and help them deliver their vision. Given the high stakes, an adviser has to understand everything, get a bird’s eye view, then dive into detail, before coming up with an adequate solution. For a company with many moving parts, that can be quite an undertaking.

‘Communication between the business and its advisers is absolutely critical with conversations being our greatest resource’, says Liz Pinnock, Partner, RSM South Africa. ‘For me it is key is to make sure that dialogues between myself and the business are as honest and open as possible’.

“A lot of times, our clients are not as direct as we really need them to be’, Pinnock continues. ‘They’ll call and ask for a copy of general regulations regarding lockdown, and maybe you’ll ask how they’re doing, make some small talk. This is where the relationship-building aspect comes into play, because it’s hard for people to ask for help’. The advisers who are best at this are the ones who are curious, and genuinely care for their clients.

Unlocking after lockdown

It is becoming increasingly obvious that we will emerge from the Covid-19 crisis into a whole new world order. By now we’ve heard, “We’re all in this together” a thousand times, and while that is true, it might be more accurate to say, “We’re all figuring this out together.” As the world moves beyond the React phase into Resilience, we are firmly turning our eye towards what lies beyond Covid-19.

And even when the outlook is optimistic, businesses we help still need someone to hold their hand through the process because it can be highly complex and intimidating. Ultimately, there is a very human aspect to this. Their business is something they have built, together with their employees, and they want to see it protected and preserved for the future.

‘Beyond the legal aspects to restructuring’, Pinnock concludes, ‘In the end, it is about building relationships. Our job is to help our clients look up, and to be positive and pragmatic about the outcomes we’re building together. It’s not just about surviving “The New Normal” – it’s about thriving in it’.

Business

Return to work: Flexibility, preparation and communication are key

Return to work: Flexibility, preparation and communication are key 2

By Matt Weston, Managing Director, Robert Half UK

As lockdown restrictions ease for the foreseeable future, conversations across the business world are starting to turn to how employers can safely and seamlessly prepare for their workforce to return to the office.

Research from Robert Half has found that over half (54%) of employees are worried about working in close proximity to their colleagues, while a similar proportion are eager to return to the office due to loneliness working from home (45%) or concerns about missing out on career opportunities (30%).

Unsurprisingly, after everything companies and their employees have done to successfully adapt their operations and working practices to social distancing rules over the last few months, immediately returning to the old ways of working will likely neither be sensible or practical. With safety being the key priority for the ‘new normal’ of office life – communication, flexibility and preparation should be the main focus areas for employers.

With this in mind, what are the challenges and opportunities that employees anticipate as they prepare for the return to work, beyond government and industry supplied health and safety best practice? Furthermore, how can employers best support their staff during this period?

Keep people at the heart of change

It is important to recognise that your workforce has been working through an intense period of uncertainty and change for months, which can be incredibly unsettling. On top of this, working for weeks in isolation without the usual physical interactions with team members could be potentially detrimental to employee engagement and mental wellbeing.

Having adjusted to keep staff connected with one another from a distance with virtual team building exercises, video calls and daily check-ins, as teams begin working in hybrid models with some in the office and others remote, staff engagement will need to adapt again.

Managing people with greater sensitivity and maintaining positivity throughout will be crucial. To help instil a sense of normality and engagement, encourage maximum collaboration between individuals (in accordance with social distancing rules), and make sure teams feel part of company goals and opportunities through regular meetings and communication – no matter their location.

Continuing to invest in technology and offering flexibility will also be important to ensuring that people can continue to work remotely or on-site, either in accordance with their own wishes or as part of your staggered return-to-office plan.

Communicate, communicate, communicate (and listen)

Reassuring staff that they are able to safely return to the office will require continuous communication. From expectations of the physical office, to expectations of how to operate within hybrid teams, these new expectations and new workplace requirements should be communicated to all staff clearly to avoid confusion.

Regular email updates, updates on the company’s intranet and social media channels, as well as frequent town hall meetings (either online or in a smaller setting) could be key elements of an effective communications approach.

Also, consider a feedback channel to allow staff within the team to offer thoughts on their experience of returning to the office and any suggestions on improving the process. Whether on a company-wide basis or a team-by-team approach, schedule regular check-ins to engage with employees’ questions and concerns.

Maintaining open communication channels with your team will be essential for keeping up employee morale and ensuring clarity. For example, if some employees aren’t comfortable with coming to the office every day, then they should have plenty of opportunities to voice their concerns and have them dealt with promptly, respectfully and fairly.

Staggered return-to-office planning

Depending on the size of business and density of office space, maintaining home working arrangements across teams on an alternating basis could make it easier to implement safe social distancing. This involves select teams working remotely while others work on-site on any given day.

An alternating approach to remote working might also reduce the risk of staff feeling pressured or overwhelmed by an immediate return to the office five-days-a-week. After all, some families might be juggling temporary disruptions to childcare arrangements and public transport systems will likely become crowded again. So, a transitionary period will help everyone adjust to post-lockdown office working.

Finally, if you have developed your technology infrastructure to facilitate remote working, you would do well to continue to leverage these new capabilities as in all probability, a mixture of remote and at-office work will be needed for some time.

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Business

Contis enters RBS Capability and Innovation Fund bid seeking £35 million for disruptive SME growth strategy  

Contis enters RBS Capability and Innovation Fund bid seeking £35 million for disruptive SME growth strategy   3

Leading payments provider, Contis, has applied for two grants from the RBS & BCR Alternative Remedies Package, totalling £35 million.  

Unlike most applicants who will deploy funds through a single brand, Contis is taking a completely different approach. The funding will be used to drive fintech innovation in the UK by developing an off the shelf, B2B electronic and card payment technology platform for SMEs. With Contis’ powerful tech stack and regulated status, this will empower hundreds of fintechs to support the SME market with groundbreaking technologies, payments and lending capabilities. Contis today services over 800,000 consumer accounts, 14,500 business accounts and processes £4bn in transactions per year, demonstrating a proven track record.   

UK businesses are facing a challenging economic environment with the impacts of Covid-19 and Brexit. As large corporations and entire sectors are affected, SMEs will play a vital role in the recovery. Contis’ approach is completely disruptive, offering three channels to maximise support for SMEs and sole traders, through three unique brands, all powered by APIs from Contis’ modular and configurable engine. 

1.       Canvas for Business 

Contis is a super-vendor in the world of fintech, offering payments through proven banking rails and card scheme capabilities including issuing pre-paid, debit and virtual cards. They’re linked to digital delivery like Apple Pay and Google Pay, and a trusted tech stack that boasts 99.99% uptime.  

With funding from the Capability and Innovation Fund (CIF), Contis’ technology and regulated services will be made available to the whole fintech community, enabling them to provide dedicated SME accounts with the latest leading-edge capabilities delivered via Contis’ wholly owned, secure, cloud-based technology and apps. Contis’ solution has a firm eye on the need for SMEs to compete internationally, particularly after Brexit, and offers FX integration as standard.  

Canvas for Business will increase competition by providing fintechs serving the SME market with technology that outstrips the big banks. Contis will also provide credit referencing capabilities and empower fintechs to lend to their SME client base through Contis’ own credit licence. Without the constraints of legacy systems, it will enable simple connectivity to accounting and payments solutions, as well as to unlimited future innovations.  

2.       Engage for Business 

Over 150 Credit Unions currently use Contis’ Engage service and technology, and hold an estimated £400 million in undeployed cash reserves. Developed with CIF funding, Engage for Business will enable Credit Unions to launch business accounts and payments products for the first time, and allow excess funds to be redeployed in the SME sector through business support loans. This will revolutionise access to funding for sole traders and small businesses. 

3.       Freedom for Business 

With CIF funding, Contis will also offer large scale SMEs a direct-to-market solution where Contis holds the relationship and provides a bespoke offer to meet the business’ exact needs. 

Contis’ application to the Capability and Innovation Fund is focused on creating the widest possible impact for UK SMEs by fulfilling their accounts & payments needs and driving innovation in SME financial services. 

Through the grant, Contis will empower over 200 fintechs and Credit Unions to provide credit, simplify payments integration into everyday business needs, offer digital credit referencing, provide budgeting tools to SMEs, enable automated payments, give predictive insight on cash flow, provide rewards to SMEs on spending, and much more. 

Peter Cox, Founder and Executive Chairman of Contis said: “Our mission is to democratise payments and financial services for all SMEs, so they’re spoilt for choice with innovative and affordable solutions that meet their exact needs. Our approach, based upon proven technologies, will broaden and disrupt the services available to SMEs far beyond the capabilities of existing providers such as the big banks.  

“By driving competition and innovation, while improving the availability of funding, our approach will increase the services on offer to SMEs and make them more affordable, therefore becoming easier for every entrepreneurial person with vision to run their own businesses.” 

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Business

Four years of digital transformation in four weeks: UK lockdown puts pressure on brands to digitally deliver

Four years of digital transformation in four weeks: UK lockdown puts pressure on brands to digitally deliver 4

Nearly a third (32%) of consumers would switch providers if a brand’s website is unavailable for more than 24 hours

A study released today reveals the scale of omni-channel pressure brands now faced as a result of the Covid-19 pandemic, as consumers flock to apps and websites to as the priority destination to transact with brands.

The UK has experienced a huge leap in use of online services thanks to lockdown, with the public appearing to have less concern for the availability of a brand’s physical location. Research by Sungard Availability Services (Sungard AS) uncovers a “window of availability” that UK businesses now have before consumer loyalty changes:

  • If a brand’s website is down for 24 hours – 32 percent of consumers would switch provider
  • If a brand’s app is down for 24 hours – 28 percent of consumers would switch provider
  • If a physical store is closed for 24 hours – 20 percent of consumers would switch provider

The results by industry paint an interesting picture of the availability timeframes brands are expected to adhere to:

  • For online retailers, excluding grocery retailers – 23 percent of consumers would switch provider if they could not access online services for 12 hours, rising to over a third (34 percent) after 24 hours
  • For financial services and entertainment streaming platforms – 21 percent of consumers would switch provider after 12 hours, rising to 33 percent after 24 hours
  • In the case of online grocery shopping – 20 percent would switch provider after 12 hours, rising to one third 33 percent after 24 hours

The findings also highlight that as digital reliance increases, so will consumer expectations towards availability in the future. Over the coming two years, a third (33 percent) of consumers expect online financial services to always be available, rising to 35 percent for streaming services.

“UK consumers have become reliant on the constant availability of online services, and lockdown has only served to heighten this,” comments Chris Huggett, SVP, EMEA at Sungard AS. “What used to be a choice between physical and digital has now firmly accelerated into digital environments across various industries. As online worlds continue to outpace bricks and mortar as the face of businesses, ensuring constant availability and clear communications on downtime will be key for brands to build trust and loyalty.

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