Financing a Rescue

Abstract

With the start of a workout, workout support proceedings, or formal insolvency proceedings, a business enters a new phase in its business life cycle, resulting in a restructured business or, when restructuring fails, the liquidation of its assets. This phase will also give rise to new costs, including fees for the involvement of advisors (legal, financial, turnaround) and, perhaps, a court and an IP. Furthermore, cash restraints must be overcome in order to secure the continuation of the business for the duration of proceedings (interim finance), but also in order to implement succesful restructuring measures following the conclusion of proceedings (new finance or plan implementation finance). Considering the financial situation of a troubled business, financing needs will usually require lenders, instead of shareholders, to provide for cash to meet these costs. At the same time, a stay of enforcement actions and payment dues may serve as a valuable instrument for securing incoming cash flow as well as limited cash reserves for a rescue effort. In this chapter, we evaluate these cash-related instruments.