Restructuring and Strategic Advisory for COVID-19

Restructuring and Strategic Advisory for COVID-19

At Duff & Phelps, we recognize that a number of our clients face challenging times in light of the far-reaching, still unknown impact of COVID-19. We are here to help. Difficult situations require decisive action. The quicker we are to act, the greater the chance of mitigating disruptions to global business operations.

More than two months has passed since the first cases of Coronavirus Disease 2019 (COVID-19) were identified in China’s Hubei province, and the effects on worldwide business are noticeably significant. It is likely that much uncertainty will prevail over the coming weeks and months.

It is a particularly testing time for many Irish businesses, especially those in the tourism, hotel, food and beverage and retail sectors. The decision to cancel all St. Patrick's Day parades and the associated implications will only add to ongoing challenges. Based on information collated by the Irish Hotels Federation, Irish tourism supports in excess of 260,000 jobs, which is one in every 10. 70% of these are outside Dublin. The Restaurants Association of Ireland has forecast that up to 30,000 jobs could be lost in the tourism and hospitality sector over the next three months due to the coronavirus. The earlier decision by Government to close all pubs, including hotel bars will lead to many business closures and significant job losses.

The support package available for distressed business unveiled by the Government is helpful, and will assist in addressing some of the challenges faced, however, it will not be a panacea for the extent of difficulties that many businesses will experience in the short-term.

How Duff & Phelps Can Help

Duff & Phelps has a proven track record of experience helping clients navigate challenging situations and business disruptions. Our team of experts is ready to assist and provide sound advice during these challenging times.

Below are some critical issues confronting many businesses and how we can provide counsel:

Problem: Cash Flow Constraints Arising from Reduced Revenue

One of the most common problems faced by numerous businesses in the wake of COVID-19 is reduced revenue from the general downturn in business. This, particularly for undercapitalized businesses, gives rise to reduced cash flow and the ability to meet payment obligations and ultimately sustain the business.

Where Duff & Phelps Can Help

  • Assisting in the assessment of business viability
  • Preparing profitability analyses and forecasts based on reduced revenue to determine working capital requirements going forward
  • Acting as an independent third party in negotiations with financiers, suppliers and landlords for extended or revised payment terms
  • Revising business plans including providing for restructuring scenarios around reduced revenue levels
  • Seeking independent advice from professional restructuring advisors such as Duff & Phelps provides evidence that the directors and/or senior management are taking proactive steps to address insolvent trading concerns, thereby minimizing the risk of future prosecution

 

Problem: Breach of Contract

One of the consequences of any form of business disruption is the inability to meet contract obligations. Examples include:

  • Inability to meet payments due under commercial property lease agreements
  • Failure to manufacture and deliver goods on time
  • Failure to achieve designated revenue targets under franchise, partnership or joint venture agreements

Where Duff & Phelps Can Help

Under such situations we encourage parties involved to negotiate an amicable commercial solution given the unforeseen nature of the disruption. However, in some situations, this is not possible, particularly where the disruption brings light to pre-incident problems facing the underlying business. In these situations, Duff & Phelps is often called in to assess, quantify and document the financial impact of the breach of contract for the purpose of legal proceedings or an insurance claim.

Problem: Fraud

Our experience demonstrates that business disruption can also give rise to increased incidents of fraud. Examples include businesses that seek to falsify revenue to meet required ratios pursuant to finance facilities and ensure retention of existing credit lines.

Similarly, employees may be pressured to falsify revenue targets to achieve bonus/commission targets, or simply to justify their continued employment.

Where Duff & Phelps Can Help

Duff & Phelps can assist key stakeholders including management, shareholders, financiers or other investors to identify and quantify fraud or assist in the implementation of measures to prevent fraud.

Problem: Downsizing Surplus Entities

The current economic downturn provides an ideal opportunity for many businesses to take stock of their operations and address non-performing parts of their business including surplus entities.

Where Duff & Phelps Can Help

 Our expertise includes assisting in the winding down and subsequent liquidation of unprofitable non-core entities and ensuring the delivery of significant cost savings in the process. We have particular expertise working across jurisdictions on projects that involve restructuring complex corporate structures in conjunction with existing service providers, including lawyers and tax advisors.

Should you require any assistance with disruptions stemming from the COVID-19 outbreak or any other crises, please feel free to contact any of our team members.

Having advised companies on crisis situations, our experience suggests that the sooner proactive steps are taken, the greater the likelihood of mitigating the negative outcomes of a major business disruption.

We will continue to monitor the development of the COVID-19 situation and report on its financial impact on businesses in Ireland. We understand that this is a difficult time for all businesses, their staff and families, and our thoughts are with everyone affected.

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