Special Situations

Is it a cash problem or a business problem?

Lauterbrunnen Valley · Bernese Oberland

The shape of the practice

The first question decides everything that follows, and the time to answer it is short. We act both for those who need to reorganise and for those considering an acquisition, with the proviso that we are never on both sides of the same transaction

Typical engagements

Economic and financial viability report
Liability restructuring
Negotiation with creditors
Acquisition of distressed assets
Assessment of reorganisation plans
Sale of a separate business unit (UPI)

The diagnosis

A cash problem is solved with time and with structure. A business problem is not solved with money, and treating one as the other is the costliest mistake in this practice

Liability reorganisation

Renegotiation with creditors, maturity extension, conversion and design of the structure the business can actually sustain, not the one it would like to sustain

The viability report

Economic and financial viability report supporting a judicial reorganisation (recuperação judicial) filing, with well-founded projections and stated assumptions

Acquisition of a distressed asset

On the buyer's side, due diligence must be done in weeks, and that changes what can be verified. An acquisition within judicial reorganisation offers protection against successor liability that an acquisition outside it does not

The process

How the work runs, phase by phase

Reorganisation

For those who need to restructure

A process whose first deliverable is the diagnosis, and whose first decision concerns time

Diagnosis in two questions
Is it a cash problem or a business problem, and how much cash runway remains. Together, the two answers define the range of alternatives available
Short-term cash flow
Construction of the thirteen-week cash flow, the instrument that separates an informed decision from a decision made in panic
Creditor map
Survey of liabilities by nature, security and maturity, identifying who has the power to accelerate and who has the incentive to negotiate
Alternatives
Comparison between out-of-court renegotiation, court-supervised out-of-court reorganisation, judicial reorganisation and asset sale. Each has a different cost, timeline and effect on the controlling shareholder
Negotiation
Management of discussions with creditors, with a proposal grounded in actual capacity to pay rather than in wishful thinking
Report and plan
Preparation of the economic and financial viability report and support for the plan, with stated assumptions and projections the business can sustain

Special situations acquisitions

For those considering an acquisition

A short-timeline process, in which discipline over what can be verified decides the outcome

Screening
Rapid identification of what is for sale and why. A distressed asset has a seller under time pressure, and time is the main source of discount
Asset diagnosis
Separating what is a capital structure problem, which the acquisition solves, from what is a business problem, which it does not
Acquisition structure
Comparison between acquiring quotas, assets or a separate business unit within judicial reorganisation, which offers protection against successor liability that the other routes do not
Due diligence under time pressure
Definition of what can be verified in weeks and what will remain as assumed risk, with explicit pricing of that risk
Offer and execution
An offer designed for the applicable procedure, and management through to court ratification or closing

The questions that start the work

How much cash runway remains?

It determines whether there is room to negotiate or whether the decision has already been made by default

Can the business sustain the restructured debt?

A plan that does not add up is a plan that will be breached

What happens to the shareholder?

Reorganisation saves the company and often wipes out the controlling shareholder

The order of payment

Who receives what if the company is liquidated

Every reorganisation plan is compared, in each creditor’s mind, with what they would receive in bankruptcy. The statutory order of payment sets that floor, and haircut, tenor and grace period are negotiated from there

Recovered in liquidationLost

Illustrative: liquidation value of R$100 million against R$161 million in claims. Order of payment under articles 83 and 84 of Law 11,101 of 2005, as amended by Law 14,112 of 2020. Revenaz analysis

The procedures

Four routes, with different cost, timing and effect on the controlling shareholder

	Private workout	Out-of-court reorganisation	Judicial reorganisation	Bankruptcy
Who is bound	Only those who sign	All creditors of the classes covered, once the quorum is met	All affected creditors, including those who voted against	All creditors, in statutory order
Quorum	Unanimity of those involved	More than half of the claims of each class covered	Approval by class at a creditors’ meeting, with possible cram down	No vote
Stay of enforcement	None	Available once one third of the claims have joined	180 days, extendable once for the same period	Permanent
Publicity	Confidential	Public from the filing for court approval	Public, with a court-appointed administrator	Public
Controlling shareholder	Keeps management	Keeps management	Keeps management, under court supervision	Removed from management
Typical timing	Weeks to months	Three to six months	One to three years to closure	Years

The reorganisation toolkit

What the law allows and few use well

Art. 69-A

DIP financing

New money during the reorganisation, ranking ahead of pre-filing claims and secured on assets, including by a second-ranking lien. It keeps the business running while the plan is negotiated

Arts. 60 and 141

Isolated production unit

Sale of part of the business under the plan, free of labour, tax and other liabilities for the buyer. It is the structure that makes it possible to sell what works

Art. 58, § 1

Cram down

Court approval of the plan even if one class rejects it, provided the statutory alternative quorums are met and there is no unequal treatment within the dissenting class

Art. 56, § 4

Creditors’ plan

Once the debtor’s plan is rejected, creditors may present their own, including debt-for-equity conversion. It is a risk the controlling shareholder must price from day one

Art. 69-J

Substantive consolidation

Treating a corporate group as a single debtor where assets are commingled or businesses interdependent. It changes which assets answer for each debt

Law 13,988

Tax settlement

Negotiation of tax liabilities with discounts on fines and interest and a long payment term, a practical condition for reorganising companies with significant tax debt

The signals that come first

The problem shows up in working capital months before it shows up on the balance sheet

Supplier terms stretching

The company starts funding cash through its suppliers, the most expensive credit and the first to run out

Growing receivables financing

Credit sales turned into cash at a discount, month after month

Ratios near the limit

Leverage and coverage closing in on covenants, with a waiver request on the horizon

Taxes in arrears

Tax stops being paid before payroll and the bank, because it is the creditor slowest to collect

Inventory rising without sales

Working capital locked in stock that does not turn, funded by short-term debt

Turnover in finance

A change of CFO, auditor or main bank in quick succession

Speak with the responsible partner

There is no screening. The conversation begins and ends with the person running the transaction

Get in touch

Is it a cash problem or a business problem?

Typical engagements

The diagnosis

Liability reorganisation

The viability report

Acquisition of a distressed asset

How the work runs, phase by phase

Reorganisation

Diagnosis in two questions

Short-term cash flow

Creditor map

Alternatives

Negotiation

Report and plan