Judicial reorganisation: who is it for, and when?

Bailiffs are at your door. You are losing money. You are profitable but short of cash. You were in the red for a while, you have turned things round but cannot clear the accumulated losses. In which of these cases does judicial reorganisation have a place in your recovery plan?

What the procedure actually gives you

Judicial reorganisation allows a company facing a cash problem to obtain a stay: a few months in which to reach an agreement with its creditors, and to explore ways back to profitability.

The agreement with creditors concerns mainly how the debt will be repaid. Most often it means spreading repayments over time, and in some cases obtaining significant write-downs.

Why would a creditor give up money he is owed?

The question is worth asking, because the answer governs the whole negotiation.

In practice, creditors have to choose between two options: demanding the full amount, at the risk of triggering immediate bankruptcy and recovering nothing; or giving up part of the debt, with a better chance of recovering the rest. It is these conditions, and the factors creditors will weigh, that determine whether judicial reorganisation can apply to you.

The two situations where it makes sense

The cases in which the procedure is worth considering are simple.

• You are back at break-even. Your forecasts point to consolidating that recovery, but you cannot carry the weight of the debt — whether the problem is one of timing or of amount.
• You can see ways back to break-even and need time to negotiate, to explore options, or to confirm that the measures taken will produce the expected results. Negotiating the debt comes afterwards, once the company is back on track.

Outside these situations, judicial reorganisation makes no sense.

What actually makes the difference

The unavoidable requirement is a business plan that stands up. The size of your past losses is almost secondary: it is the outlook and the credibility of your budget that will make the difference. That calls for a plan covering the next three to five years, built on solid, serious assumptions. The rest can, at a stretch, be treated as incidental.

Be clear about this: what is at stake is above all economic. It concerns how the company is run and where it is going, and your credibility in seeing the recovery plan through.

Nady Bilani