Financial recovery: description of the procedure

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Crisis at the enterprise means the emergence of the risk of bankruptcy, which is a specific manifestation against the background of the market space and reflects the restructuring of the economic structure. In the conditions of modern financial instability, problems are increasingly emerging, which economic recovery helps to solve. The financial condition of a firm, bank or enterprise is established by analyzing and diagnosing a competitive position in the market and economic instability in a situation of capital redistribution. Such studies identify the initial periods of bankruptcy and determine the application of the crisis program.

The unprofitability or profitability of an enterprise in practice is distinguished by a characteristic feature in the structure of the balance sheet. Symbolic funds are reflected in the cash and current accounts, while significant amounts are placed in the items of accounts receivable and accounts payable. If the accounts payable exceed the receivables, then the company operates at a loss, and vice versa.

The Court of Arbitration issues a decision to start the observation procedure. After graduation, the firstmeeting of creditors, by decision of which an effective procedure for improving the economic situation at the enterprise is determined:

• financial recovery;
• organization of management from outside;
• production under competitive conditions.

During the above stages, full or partial settlement agreements may be established between the participants in the trial.

The essence of financial recovery

Recovery of the financial sector of the enterprise is to provide an opportunity to establish a shaken economic stability. But it does not always come to the full procedure. Sometimes a manufacturing or other company initiates a process without creating a system of observers. To do this, representatives go to court.

If the amount of the enterprise's debt for payments is less than the value of the company's assets, then a bank guarantee is not needed. An organization that has liabilities for an amount exceeding the market value of its own property requires bank guarantees only for the difference in funds. And the court does not accept applications in such conditions, therefore, a five-year installment plan for repayment of debts is provided, agreed only with a quarter of creditors.

Installment in repayment of obligations allows unscrupulous debtors to gradually withdraw assets. They still carry out production or business activities, which creates new debts. Legal restrictions are powerless against a company that does not want to give up property at the request of creditors. Financial recovery measures are designed to restoresolvency of the debtor and repay obligations in accordance with the approved schedule.

According to the decision of the Arbitration Court, based on the conclusions of the meeting of creditors, a recovery procedure is introduced. Documents attached to the decision:

• he alth plan;
• chart with specific debt maturities;
• minutes of the meeting;
• list of founders of the debtor who applied to the meeting with a proposal to introduce he alth measures;
• data on the expected repayment of debts in accordance with the proposed schedule.

A petition for the fulfillment of obligations is sometimes submitted by third parties. Payment of debts according to the schedule is carried out when secured by a mortgage, a bank or state guarantee, a surety of a legal entity. The term of financial rehabilitation is appointed for a period of not more than two years, and the procedure is carried out by an administrative observer.

Administrative observer - manager

The official performs a set of measures for the transparent conduct of the he alth-improving procedure. Be sure to maintain a list of creditors and claims. The duties of the observer include organizing a meeting of creditors. At an intermediate stage, the administrator reviews the debtor's reports on the payment of debts in accordance with the schedule and transmits the data to the creditors concerned.

The observer controls the recovery, financial change in the state of solvency and the timeliness of payments. Administrative managerrequires the head of the timely repayment of debts and the provision of information about these transactions. If the debtor makes an inventory of property, then the observer is required to be present.

Controls the execution of transactions by the debtor, provides information on this issue to other creditors. If the head of the debtor fails to fulfill his obligations, the administrative manager applies to the arbitration court with a request to change the head of the company. The observer is removed from his position by the arbitration court after the petition of the organization of arbitration managers, in which he is a member.

Improvement and rehabilitation of the bank

Financial recovery of the bank consists of comprehensive measures to solve the problem of bankruptcy. Targeted measures return the institution to normal life. State executive committees, institutions of other banks, various commercial and law firms take part in the procedure.

The refinancing procedure is the issuance of a loan to stabilize the debtor institution secured by bank assets. The loan is granted on a preferential basis. The condition for the use of the received funds is their use for making the due payments and maintaining economic stability. It is not allowed to use the amounts for lending to other persons.

To restore the functionality of the bank, a complete restructuring of overdue debts is being carried out. The bank is working with clients, and the lack of funds for paymentsindividuals and legal entities pays off by the fact that payments on credit obligations are suspended and are carried out with a delay according to the developed schedule. This prevents the outflow of depositors from the bank and the creation of an unhe althy hype.

A staff reduction scheme and the elimination of departments in the structure of the organization are used. The amount of remuneration for the work of bank employees is being reduced. Sometimes divisions are merged. Staff dissatisfaction, of course, is taken into account, but forced financial recovery measures significantly reduce the cost item.

Measures to eliminate the insolvency of the company

Bringing the enterprise to solvency is carried out by operational measures, which are non-standard from the point of view of the usual situation. The main difference between managing a crisis enterprise is the rightful allowance for any losses and omissions of benefits now and in the future, if this restores the company's solvency today.

A shortage of money becomes apparent when spending exceeds receipts. At this point, problems arise with the company's existing creditors. The financial recovery of an organization consists in the distribution of financial flows to reduce the difference between the amount of expenses and receipts.

Maneuvering is the use of existing money, assets and those that will arise in the future if the company copes with the crisis. The policy of maximizing revenue and minimizing the item of expenditure is being implemented:

• create a new payment calendar or improve an old schedule;
• use of low-liquid assets of the enterprise for sale in order to obtain funds or repayment with their alienation of short-term debts of the company;
• restructuring short-term liabilities into long-term payments.

Recovery of the enterprise

The procedure for financial recovery is carried out according to a standard scheme approved by the order of the Ministry of Trade and Economy Development of the Russian Federation. A title page is drawn up, an executive summary is attached. The document begins with a table of contents. This is followed by its typical paragraphs.

General characteristics and description of the company

The section highlights the type of main activity, the name of the form of government. The share distribution of packages between large shareholders is indicated, state ownership is determined in percent. The number and name of the structural departments of the enterprise, the number of employees, the salary fund are set.

The composition of production, types of products and output volumes are indicated. The amount of revenue for the year from the sale of goods in monetary and other equivalent terms is determined. The mass of exports is calculated in the total share of output in monetary terms.

Financial recovery in the description procedure implies a census of fixed assets, construction in progress, the percentage of completed volumes. Social facilities fit on the company's balance sheet, annual maintenance and service costs,the costs of maintaining state capacities and mobilization reserves are taken into account.

Data on the state of business and sales of marketable products

Types of products are prescribed, data on annual production for the past and forecast periods are provided. The share of each type of product in the total volume of sales is indicated, and revenue by type of product is calculated. The financial recovery of an enterprise involves the submission of planned indicators for each product, the calculation of production capacity utilization, a comparative analysis of the utilization during a crisis and in a year of effective work.

Suppliers are described with data on the supplied basic materials, the order of settlements with them is indicated, purchase prices are compared. Separately, lists of consumers are compiled, sales prices are broken down into domestic and foreign markets, data are provided on the methods of payment for goods.

Analysis of company finances

This section is important for establishing the reasons why bankruptcy occurs. Financial recovery is impossible without an analysis of economic indicators. The document presents a calculation of liquidity, business activity, economic stability of the company, indicates the total costs for each product and the financial indicators obtained.

Provides data on the share of equity in the working capital, provides data on the total mass of working capital and borrowed money. The structure of funds and the division into those that are in production and calculated indicators are determined. Specifies the ability to cover currentexpenses from working capital and average terms of settlements with organizations for shipped goods.

Financial recovery will require company data on the possibility of payments for all current obligations, the structural state of borrowed funds, and in the division into debts to banks and direct creditors to fiscal services and internal obligations. A calculation is made, and its structure is given for compiling the cost of production, data are compared in a stable year and for the same period of the crisis.

Key profit parameters are calculated, for this purpose data on profits and losses from sales, taxation, ordinary activities, emergency situations are given, the net profit indicator for the past period is calculated.

Marketing Research

The marketing component of the document is necessarily included in the financial recovery, as it contains the main measures for the sale and speedy sale of the goods. The section consists of a brief description of industry organizations and the place of the company in the general mass. The advantages and disadvantages of the enterprise in comparison with competitors are given. An objective description of market relations in this area, the target masses of consumers and the share of goods in the sales process are given. The dynamics of increasing and decreasing demand for products depending on various factors is described, recommendations are given for improving sales.

An effective marketing strategy is being developed, an action plan is being drawn up to saturate the market with the company's products,channels for the distribution of product flows, advertising moves and the impact on the buyer in order to increase demand are described. Based on the data obtained, it is proposed to develop a new or improved type of product and measures to promote the product on the foreign market.

Recovery activities

The section presents specific measures for which the financial rehabilitation of the debtor is carried out. Specific actions are given to transform the activities of the enterprise. As a result of effective activities, the following results are obtained:

• there is a monetary increase in the organization's revenue;
• costs and expenses of all kinds in the enterprise are decreasing;
• optimizes and rationalizes the company's cash flow management;
• prerequisites are being created for timely settlements of obligations.

Production plan

This section defines the role of manufacturing change in the financial operations of a company. The production program, combined with the sales plan, the cost of manufacturing goods and selling prices, is covered point by point. The need for fixed assets, personnel and resources is calculated, the salary fund is specified. It also indicates the positive or negative impact of external causes on production, and possible risks are discussed.

Funding plan

The section is characterized by objective evidence of the effectiveness of the chosen path of financial recovery. Estimated distribution is madefinancial flows and upcoming payments on obligations, taking into account the material and technical needs of the enterprise. Be sure to take into account barter transactions, mutual offsets for goods and cash.

The actual forecast of the financial results of the enterprise after the procedure of economic reforms is made, resulting in a forecasted balance sheet of the company, which clearly shows an improvement in the financial condition and economic indicators.

In conclusion, it should be noted that there are many ways to improve the economic situation at a crisis enterprise, but for their successful solution, an immediate analysis of economic activity is carried out, taking into account all of the above indicators. If this is not done on time, then the decline in production and the aggravated insolvency will have a very detrimental effect on the financial condition of the company and lead to its inevitable collapse.