SMEs: repayment, refinancing and recovery

In response to the economic consequences of Covid-19, governments have implemented interventionist measures that include partial unemployment and the deferral of corporate and individual tax deadlines.

While such policies can defer insolvency and subsequent restructuring and liquidation proceedings, SMEs need to ensure they are able to ‘bounce back’ when a more stable business environment is restored.

The main concern is that when companies relaunch their day-to-day operations and cover their running costs again, many SMEs will face extremely tight cashflow situations while adjusting to life without current government assistance. To anticipate this potential crisis, SMEs should take precautionary measures now: including negotiating debt repayment instalments and creditor rebates. See more detail below:

  1. Corporate refinancing mediation: This process can be used if you default on your overdraft or are declined a debt instalment programme, loan, deposit, guarantee or guarantee discount by your creditor’s insurer. Corporate refinancing mediation is a free, confidential and quick service that secures your existing banking support during the mediation period
  2. Ad-hoc mandate: This mutual agreement measure enables companies who face difficulties threatening their business continuity to confidentially negotiate their debts via a representative who is given an ‘ad-hoc mandate’ (usually an administrator). This representative’s main objective is to find an agreement between the company and its creditors – most often through debt instalment – to allow it to turn around while protecting creditors’ interests. Requesting an ad-hoc representative must be done through local courts. One of the advantages of this measure is that owners keep full management and decision-making oversight.
  3. Conciliation: Similar to the ad-hoc mandate, this mutual agreement measure also aims to put a deal in place between the company and its creditors via a conciliator. The deal can take the form of a moratorium, refinancing negotiation, and so on. This confidential procedure is only available to companies who have defaulted on their payments for less than 45 days. The conciliation can last up to four months and can be renewed for one month, at the conciliator’s exclusive request. Like the ad-hoc mandate, owners retain management and decision-making powers.
  4. Recovery: Through this process, the at-risk company can draft a plan, overseen by local courts, that will allow it to clear its debts, continue in business and maintain employment. The recovery process is much more stringent than the mandate and the conciliation procedures, but it can be more efficient as it doesn’t overly prioritise creditors’ interest. The recovery process puts a stop to most actions that could be launched by creditors. Contracts continuity can be imposed, even when one of the parties opposes it. Within a recovery process, debts are paid off according to the local legal guidance, which can include imposing an extension on creditors’ payment terms. This greater efficiency comes with a limitation of the owner’s management and decision abilities as only the appointed administrator or bankruptcy judge can sign off on some legal acts, including selling corporate assets.

Publication date: 25 March 2020