Is my business doomed, or is there a lifeline?

Published by Vanessa Crosby on May 10, 2011

When a business finds itself in trouble the immediate questions which arise are “can the business be saved?”, and from the owner’s perspective, “how much am I going to lose?”

Often by the time your lawyer has the opportunity to address these questions it is too late and the owner’s equity has been well and truly lost. Instead all that can be done is to ensure there is a clear focus on the rights and interests of creditors and the preservation of value to meet their claims. It is always preferable to contact your lawyer when the business finds itself in the early stages of stress which, if left unchecked, will lead to distress and eventually failure. At this early stage there are often a range of feasible options for addressing the problem so that a viable business survives and at least some of the owner’s equity interest and therefore value is preserved.

It is trite but nonetheless a very true statement, that the earlier warning signs are spotted, the better off everyone involved is likely to be. If tell-tale signs can be identified early enough, small issues can be addressed before they become big problems or worse still potentially insurmountable ones. Early identification of problems invariably means that there are more options available. There is usually a direct link between the passage of time and the narrowing of options.

Identifying warning signs early on also has a direct bearing on the creditability of the shareholders, directors and management. In distress situations the credibility of key individuals can be very important in terms of the attitude the Banks and other key stakeholders, such as major trade creditors, have to providing ongoing support.

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