Business Rescue - Planning Deliverables

What hurdles must the Business Rescue Plan overcome to be accepted?

• The company's creditors can expect a better return than that expected from the immediate liquidation of the company. However, in a liquidation claim, a creditor’s rate of return carries less risk than that of a rescue, this needs managing, carefully. It is a non-event if WACC, discount rates, NPV or IRR preferences and inputs are clear from the start.
• Jobs are saved and fewer employees are impacted than in the event of liquidation.
• The company has a realistic chance of returning to being a viable contributor to the economy.
• The threshold of creditors voting in support is met.

In order to accomplish this we need the business rescue plan to deliver a lot - more than the expected minimum prescribed!.

What can you expect from a Spark Business Rescue Plan

Our plan is constructed to meet the following criteria (test criteria)

1. Does our business rescue plan show how we have reviewed all of the prior analysis tasks for quality and feasibility?
2. Does our business rescue plan reflect the additional tasks we consider necessary for a rescue analysis?
3. Does our business plan clearly and without ambiguity articulate the specific rescue actions with quantified benefits and risks?
4. Does our business rescue plan provide sufficient information to secure implementation funding?
5. Can our business plan be used as source document for contractually binding obligations for all parties?
6. Have we used the evolving business rescue plan throughout the process as a tool for transparent communication?
7. As the business rescue plan evolves are all stakeholders aware of its content, and able to comment and provide direction?
8. Has the business plan documented concerns raised, especially those of stakeholders voting rights?
9. Has the plan documented how these concerns and issues have been addressed?
10. Are all risks to non delivery on the business rescue plan documented, tracked and owned? ie/ Retention of Key Staff, (this is an example of a typical entry into the Risk log which forms part of the plan)
11. Have we documented all our assumptions and reached consensus and alignment on these well before the business plan is formally presented and voted upon?
12. Have we used tools to negate subjectivity on key probabilities, such as a Monte Carlo analysis for either NPV or IRR calcs?
13. If this was our own family owned business, would we treat is differently in any way?

Deliverables List for Business Rescue Plan

Use this list to be clear on what the final business rescue plan will contain, and use this to assess the rigor and quality of business analysis and rescue solutions considered.

Business Rescue Planning Scope & Deliverables

Section 150 of Companies ACT	Deliverable & Content of Rescue Plan	Prescribed By  Act	Spark!  meets or exceeds legal requirements	Explanation
Part A	Background
i	a complete list of all the material assets of the company, as well as an indication as to which assets were held as security by creditors when the business rescue proceedings began	Y	meets
ii	a complete list of the creditors of the company when the business rescue proceedings began, as well as an indication as to which creditors would qualify as secured, statutory preferent and concurrent in terms of the laws of insolvency, and an indication of which of the creditors have proven their claim	Y	meets
iii	the expected repayment that would be received by a creditors, in their specific classes, if the company were to be placed in liquidation; (NPV, cents to the Rand, and total)	Y	exceeding	This source of dispute can be managed if clarity is sought and expectations managed properly. We devote a whole morning to a session between the business and its classes of creditors where we deal with the following types of issues: a) time value of money, we all know that R1000 today it not the same as R1000 in 12 months time less well understood is that the value of this R1000 after 12 months will be different for Creditor A and Creditor B. b) NPV inputs, the company's cost of capital is used , as we sum the discounted cash flows minus the original investment. (ant contribution to the Rescue Plan Cost). The cost of capital is the weighted sum of its own Cost of Equity and Debt, obviously different for each creditor c) IRR - The internal rate of return on a project is the rate of return at which the projects NPV equals zero. We need to know each creditor's "hurdle rate", the minimum rate of return they will accept for a project. (which the rescue plan is for them) d) etc, etc
iv	a complete list of the holders of the company’s issued securities;	Y	meets
vi	Remuneration and incentives of the Business Rescue Practitioner	Y	higher risk appetite for performance and risk based reward
	Any proposal made informally by a creditor of the company.	Y	meets
Part B	Proposals
i	the nature and duration of any moratorium for which the business rescue plan makes provision;	Y	meets	To be clear, it is not that time is frozen here! The outstanding debt will incur cumulative interest charges on any outstanding capital amounts, if so structured. The business mere has no obligation to service this debt during this period.
ii	the extent to which the company is to be released from the payment of its debts, and the extent to which any debt is proposed to be converted to equity in the company, or another company;	Y	meets	If this is an option explored, then the stakeholder management and open communication must be stressed. The various valuation techniques - discounted cash flows (preferable) to using multiples (censure suggested), can lead to stalemates and lost consensus!
iii	the ongoing role of the company, and the treatment of any existing agreements -ie contracts etc	Y	exceeds	We conduct an operating model review, which will focus on what the core business functions are, many businesses run their own call centers - without expertise and without economies of scale. most times this is not a core-function and can be done better and cheaper elsewhere, there are many Process Management companies following in Accenture's model adopted 15 years gap, they
iv	the fixed assets of the company that could be available to pay creditors’ claims in terms of the business rescue plan;  and	Y	meets
v	the order of preference in which the proceeds of property will be applied to pay creditors if the business rescue plan is adopted;	Y	meets
vi	the benefits of adopting the business rescue plan as opposed to the benefits that would be received by creditors if the company were to be placed in liquidation;	Y	exceeds	Any result is dependent on the Quantum of the benefit, the probability of success and quality of the initial analysis. We strive to be more thorough and accurate in what is assessed as viable, easier to attain etc.
vii	the effect that the business rescue plan will have on the holders of each class of the company’s issued securities	Y	meets
	Balance Sheet Optimization	Not explicitly	Always	This covers items as trivial as Unused supplies or services which are often recorded as assets, while the used or consumed parts of the supplies or services are recorded as expenses. It should also cover any Risk Capital if thesis FS and the investment assets used within the liquidity definition and guidelines - we have seen instances of 80% investment in highly liquid but low return cash, this is an opportunity cost that if reviewed adds low impact benefit, with more certainty than other actions. It should also assess non-core assets, redundancy and under-performing assets.
	Income Statement Austerity	Not explicitly	Always	This involves linking the Financial lines to operational drivers of their value, which we then must ensure are owned, have targets set, with tracking and consequences/incentives built in. The big focus will be Operating Cash Cycles, which  reviews for what period of time is the company's money tied up in inventory and other current assets before customers pay for the end product or services? measured in days.  the amount of cash is needed to finance each unit of sales and what is the amount of cash generated by each ZAR of sales? measured in Rands
	Lean - Wasteful Practices and Inefficiencies	Not explicitly	Always	The days of the OCC are a function of Processes across departments, and almost always this means diluted ownership of the overall process, there is almost always waste. It is not unusual to find improvement to the Cash Cycle of 30% days reduction  and another 20% on terms of the quantity of cash required.There are many sources and causes of waste,  over production and excessive inventories discussed above, rework from poor quality, process waiting times, excessive hand-offs, value-less process steps (quality checking the quality checker!), transport etc. If you brought in a team of Toyota Black Belt process engineers, I would wager that they would not identify any waste removal opportunities that the business did not already know about!!!
	Value Based Management	Not explicitly	Always	All about removing either value destroying channels, customers or products -along with associated variable costs. See week1 pages and embedded training documentation on this.
	Powerful ideas for aligning incentives and sharing risk.	No	Always	When last did you hear of Everyone in the firm shifting to a 4 day week? with an immediate 20% reduction in staff costs, with no retrenchment costs? One of the main risks faced is the lack of productivity in the demoralized workforce. Good and talented people will go because they can, less talented will remain, and so the detach spiral starts. Why not build camaraderie, share the pain, without inflicting all of it on fewer people? Tie this into the normal tactics employed and there's a great benefit, reduced risk and an instrument for culture change.there are many more examples of this kind of thinking available to us, and under-utilized.
Part C	Assumptions and Conditions
1-aa	the conditions that must be satisfied, if any, for the business rescue plan to— (aa) come into operation	Y	meets
1-bb	the conditions that must be satisfied, if any, for the business rescue plan to— (bb) e fully implemented	Y	meets
ii	the effect, if any, that the business rescue plan contemplates on the number of employees, and their terms and conditions of employment;	Y	exceeds
iii	the circumstances in which the business rescue plan will end;	Y	meets
iv	a projected— (aa) balance sheet for the company;	Y	exceeds
iv	a projected— (bb) statement of income and expenses for the ensuing three years,	Y	exceeds
	must include a notice of any material assumptions on which the projections are based; and (b) may include alternative projections based on varying assumptions and contingencies		exceeds	we adopt a risk management approach, which documents assumptions, defines red flags and associated actions, assigns ownership and ensures better response to risks and better control of disruption (but not the removal unfortunately|)
	Statements of accuracy and completion of document		meets

To get a better idea of some of the immediate actions we'd take on a Business Rescue, please refer to this link: skeleton rescue planning  Week 1