I was recently contacted by a professional colleague asking that I meet with a director of a company facing reasonably serious financial problems. The problems themselves were not insurmountable. The issues had been identified at a stage where there was still a range of options able to be deployed. Money was available to satisfy debts (or a goodly portion of them), and there was every possibility of the company recovering its profitability and continuing long into the future.
However, financial difficulties are almost always symptomatic of other underlying issues – emotional, mental, family – the list is long. Rarely is it the case that bills go unpaid through a simple decision not to pay. Scratching the surface often identifies contributors, if not the cause. The question constantly demanding the attention at initial conferences is ‘do you scratch and if so, how hard’?
Whilst many spruik the virtues of corporate recovery and restructure, without the ability to identify, understand and address the drivers of financial difficulty, there is perhaps little to be gained from implementing a rescue package. In the long term, unaddressed underlying causes tend to manifest themselves in similar (read: repeat) symptoms. This is not always the case, but experience dictates it’s preferable to rely on better management than luck.
Clearly then, the efficacy of any restructuring arrangement (be it formal or informal) rests with addressing the causes of the financial dysfunctionality. So much would appear obvious. However, gaining traction with those who direct and manage companies facing the spectre of insolvency can often be difficult – especially if the reluctance is rooted in corporate denial.
Corporate denial – the refusal to acknowledge the existence of the factors driving, in this case, financial distress – is in many cases deep-seated and based in irrationality. Such a position is also rarely overcome with logic. The most thoroughly reasoned rescue package is often rejected due to an apparent inability to fathom the issues associated with the restructure. Issues such as shame, a sense of personal failure, isolation and a plethora of others often drive an inability to engage.
For a corporate rescue to be truly successful, it must be owned by those ultimately responsible for its implementation. If the best outcome that can be comprehended and implemented is paying the debt in full, no matter what the financial risk, then so be it. No doubt other stakeholders in the transaction would share that view.