Reputational, commercial, financial, corporate governance... A 'crisis situation' can cover a range of different realities. How can they best be prevented?
In these uncertain times facing Brussels entrepreneurs, Beci organised a seminar at the end of September on the various aspects of crisis management, in collaboration with specialist firms akkanto, Catalyst and Fidal.
As reported by the press in recent months, the number of companies in difficulty has reached alarming proportions. Christophe Cornet, a senior lawyer at Fidal, says he has seen a growing number of cases in his practice. ‘Unfortunately, many come too late, when they are already on the verge of bankruptcy,’ he laments. The reason for this is the prospect of ceasing operations and bad publicity, which has had the effect of paralysing managers – or even plunging them into denial – rather than spurring them into action.
Step out of the tunnel vision, pause for perspective… and anticipate difficulties
Sometimes, it can be more prosaically a matter of ignorance or inconsistency in management. ‘From the manager of a hair salon to the CEO of a large company, everyone must be able to recognise the warning signs of a crisis. To do this, you first need to be able to take a step back and pause for perspective,’ insists the expert, who has repeatedly seen managers so preoccupied with their day-to-day tasks that they overlook formal notices from suppliers, the National Social Security Office or VAT reminders. ‘These are all milestones that generate late payment interest and can lead straight to financial insolvency,’ he warns.
Talk to your accountant
But what warning signs are we talking about? They can be found in a company's balance sheet, which is an ideal starting point for identifying a company's financial weaknesses. Christophe Cornet mentions changes in turnover and short- and long-term debt. And, of course, cash flow. ‘One of the keys is having a good understanding of your working capital requirements. Once you have a handle on your customers' payment deadlines and the deadlines you impose on your own suppliers, you're no longer navigating in the dark,’ he says.
Surround yourself with the right people
Beyond that, to ensure you stay on track operationally and financially, ‘you also have to be willing to be challenged by the professionals around you,’ insists the lawyer. Even if a small organisation does not always have the means to set up a top-level board of directors, entering into open dialogue with your accountant, a professional auditor, a lawyer or an experienced external mentor can be a lifesaver. This will provide support in setting up processes – systematic recording of invoices, regular monitoring of customer payments, etc. – that will ensure clarity in financial flows and shed light on the future viability of a business.
Put yourself in a position to negotiate
Responding to the warning signs of a financial crisis also means putting yourself in the best possible negotiating position with your creditors, whether private or institutional, before things really take a turn for the worse. ‘You have to be able to demonstrate that your debt is not too high and is manageable in the long term. When it comes to private creditors, you can sometimes count on trust. But when institutional creditors, such as the ONSS, start to doubt your ability to pay, they can very quickly put a stop to things and file for bankruptcy,’ says the lawyer.
So is it really that harsh? ‘Whatever the situation, there is always room for negotiation,’ says the expert. ‘Some of my clients, who anticipated the situation well, have ensured the survival of their businesses even though they are on their third or fourth repayment plan with institutional creditors. But to do this, you need to be able to provide payment guarantees and a healthy situation with regard to private debts. Above all, you must meet the institutional deadlines that have been granted,’ he insists.
Responsibility of company directors
In fact, the risk incurred by a company director in the event of bankruptcy is much greater in the case of unpaid debts to institutions than when dealing solely with commercial debts. "When cash reserves are exhausted, it is therefore necessary to establish a repayment strategy and make the right decisions. The challenge is to avoid accumulating debts to institutional creditors, which can have a snowball effect, while continuing to pay creditors whose supplies are essential to the continuation of the business," explains Christophe Cornet. The personal stakes are sometimes enormous. ‘Too often, directors shut themselves away in the ‘anything but bankruptcy’ mindset. They are unaware that they are obliged to take action and document it, and then find themselves facing liability proceedings for failure to admit or late admission of bankruptcy. The financial consequences can be dire.’
Different types of crises
Beyond financial complications, a troubled environment can lead to human crises, such as conflicts between shareholders. Or commercial disputes with customers or suppliers. Or production malfunctions, such as contamination in the food industry. ‘All of these situations can jeopardise the very survival of the company and have economic, legal and reputational repercussions. Decisions taken in each of these three areas can have a positive or negative impact on the other two. Here again, the manager may be held liable. A rapid, holistic and collaborative approach therefore makes perfect sense,’ concludes the lawyer.
The CEd Relance is here to help companies in difficulty, more information here.