Funding and Reorganizing in an Economic Downturn

Newhouse Partners Inc., Oakville Ontario, [email protected], www.newhousepartners.com

How to Fund and Re-organize During an Economic Downturn

The Experion Group, March 24th, 2010

Shayne TracyFlorian Meyerrevitalize, reposition, rebuild

3 www.newhousepartners.com

Agenda

Opportunities??

Bankruptcy Proposal

First Step - Creditor Proposal Process

Potential Second Step - Going Bankrupt

When to Restructure

Newhouse Partner’s Process

Case Study Results

Questions


Opportunity – Lost??

Here is the background on one of our clients:

Company was not performing well

Bank sent loan account to Special Loans and the loans had been called

Had not paid CRA for sometime-CRA have closed the company bank accounts

Were not paying the suppliers

Not delivering products on time

Product quality was slipping

Only one main customer

Business had no organization structure

All doors lead to the owner

Partner ejected from business due to alleged Fraud

WHAT’s NEXT??


Why Use the Bankruptcy Process??

The Bankruptcy Process is potentially a two step process.

First Step is to engage a Trustee and start the Creditor Proposal Process (NOI)

This stops all credit proceedings, such as creditor collection and CRA closing of the company bank accounts

Gives the company time to reorganize and make a proposal to creditors

Frees up cash flow, collect AR to pay the current AP and restructuring costs

Gives a minimum of 30 days before needing to call a creditor proposal meeting


Creditor Proposal Process

File with courts the NOI

Within 10 days file a cash flow for the business

Trustee will notify the creditors that a Creditor Proposal is being prepared which stops the historical collection process

Do not pay any historical payables

Must stay current with all current liabilities

Negotiate a deal with secured creditors – likely a bank – Forbearance Agreement

By 30 to 45 days issue a Proposal to creditors and establish a date for the Proposal to be reviewed and voted on by the unsecured creditors

Offer unsecured creditors 10 to 20 cents on the dollar paid over a number of years.

Call the unsecured creditors and encourage them to support the proposal

Continued…..


Creditor Proposal Process Continued

With Unsecured Creditor Approval next seek Court approval

Entire process could take up to six months

Once court has approved, creditors will start to received funds

At this point CRA – source deductions must be paid-off within six months

Could use SR & ED Tax Credits to help pay-off the source deductions

Alternative If they do not approve the process the company is put into

bankruptcy

Under the latter option the unsecured receive nothing

This would start the second step


Benefit of Creditor Proposal Process

Company given time to rethink strategy

Time used to develop go forward plan

The Accounts Receivables used to fund the business going forward, almost like an equity injection

Gives the CRO and restructuring team to review the business

Identify the operational, human resources, sales and marketing issues

Develop steps and structure to correct these issues

Work with the team to ensure the entire structure will support the business

Work with all stakeholders to ensure the entity will success


What Happened With Our Client

Evaluated all of the senior and mid level staff for “fit”

Moved or changed out the staff that were not a fit

Created an transition management team

Started to establish operating structure for the business

Strengthened the Sales Team to expand beyond one main client

Had bi-weekly town-hall meetings with all the staff

CRO controls finances and expenditures

Results:

AR current

Deliveries on time and quality greatly improved

Company started to work like a well oiled machine

Started to deliver to two additional clients


Second Step - Going Bankrupt??

Creditor do not support company or

Company can not pay the creditors

Next Step:

Them company goes bankrupt

Trustee must sell the assets to the highest bidder

CRO could work with the Trustee to make an offer for the assets

If successful this would allow operating entity and its assets to move to a clean new entity with no debts

Results:

All debts gone

Fresh start for the business

Original owner most likely also had to go bankrupt


The Newhouse Partners Difference

Our experience suggested a broader solution is required

Restructuring provides a window of opportunity to address fundamental issues within the four pillars of the business model finance human capital marketing & sales operations & technology

Goals include: improving long term cash flow understanding the core issues of the business addressing these core issues with relevant disciplines enhancing profitability increasing corporate value


When to Consider Restructuring

10 Key questions for the CEO:

Is your financial performance less than what is expected?

Is the direction of the company clearly understood by all stakeholders?

Are the company's current strategies working?

What strategic issues need to be addressed?

Do customers and employees understand the company's value stream?

Is the company responding to market and customer demands and needs?

Does the company have a culture of discipline and performance?

Is management executing well? Are they leaders, not mere managers?

What is the depth of technical and people skill of management and staff?

Does the company have the right people in the right place doing the right things? (Jim Collins Good To Great book)


Start the Process

proactive and coordinated across four pillars

multi-directional stakeholders employees clients creditors government

Communication is the fundamental mechanism for enabling, coordinating and managing change:


0-30 Days: Stabilize

Cash Flow and Financial Planning

Marketing and Sales Review

Human Capital Inventory & Assessment

Operations & Technology Evaluation

Stop the bleeding, stabilize operations and understand the issues:


30-60 Days: Plan

Develop an 18 Month Business Plan

Define Market Strategy

Organizational Development

Operations & Technology Planning

Establish a go forward strategic plan:


60-90 Days: Rebuild

Financial Optimization

Sales Planning and Program Implementation

Restructure, Realign, Team-build and Recruit

Operations & Technology Streamlining

Operationalize the strategy and rebuild the organization:


90 Days+: Transition

operations stabilized

ramp-down period (3 to 6 months typical)

client management team populates executive roles

Transition operations to client management team:


Case Study: Custom Manufacturer

Symptoms

over promising/under delivering

cash flow challenges inability to attract “new name” clients unpaid suppliers employees not being paid on time disgruntled creditors

Problems

unclear vision

risk averse (analysis paralysis)

poorly defined market strategy

lack of management depth

operations focused on customization and not creating a standardize product


Case Study: Custom Manufacturer (cont’d)

reduced creditor debt by $1.5 million

wide-scale skills realignment

Finance

HumanCapital

Marketing& Sales

Operations

shifted from sale-driven to market-driven implemented "manage earnings" and

"invest to build" strategies

cash flow positive

instituted a multi-level communication plan transitioned founder to sales & changed some of the senior management

refocused market strategy

Developed company structure to ensure many hands participated Each area of the business was

structured to enable each staff person to know their entire job and process structure

new external funding

first new-name sale in years


Case Study Summary

Restructuring provides a window of opportunity to address fundamental problems within the four pillars of the business model finance human capital marketing & sales operations & technology

Benefits include: improving long term cash flow renewed focus on the business clear go forward strategy time to establish the corporate structure enhancing profitability increasing corporate value


Meet the Team

Specializes in financial crisis management with specific experience in corporate leadership, finance, controllership and treasury functions.

Sought out by mid-sized companies for his insightful identification of recovery opportunities and his pragmatic approach to leading corporate turnarounds.

25 years experience

Specializes in assessing the people talent pool (attitudes, competency, behavior and values).

Designs effective organization structures

Known for making tough but fair people decisions to ensure the right people are in the right positions for corporate growth and profitability.

25 years of experience

Florian Meyer MBA, CA

Finance Practice Leader & CRO

Shayne Tracy Ph.D.

Human Capital Management Practice Leader


Summary

Optimized Stakeholder Value a multi-disciplined approach addresses the root

cause of the problem, not just the symptom

Speed of Recovery Transform90TM

methodology

Results Oriented implement what we

recommend results-based fee

structure

Reduced Risk seasoned senior management team with hands-on operating

experience proven track record revitalizing distressed companies large resource of professionals within The Experion Group

Newhouse Partners Inc., Oakville Ontario, [email protected], www.newhousepartners.com

416-873-8684

revitalize, reposition, rebuild

Questions!!

http://www.newhousepartners.com/

Documents

Funding and Reorganizing in an Economic Downturn