It is no secret that, due to COVID-19 and the collapse in oil prices that many companies in Alberta are in financial distress. While lenders have generally cooperated during this period, business owners are now, with good reason, anxiously dreading the “call from the bank”. However, that call does not have to mean the end of the business. There are steps that can be taken and discussions that can be had with your lender to save your business. Here are eight things to keep in mind when dealing with the bank:
- Ask – Is the business worth saving? The very first question you should ask yourself is whether your business remains viable under any circumstances. As discussed below, working through an insolvency process takes time, energy and money. If you believe your business is worth saving, however, it is all worth it at the end of the day. So this is a question which must be answered at the outset, with honest self-reflection. Even if the answer is no, however, you should still consult an expert to come up with an exit strategy.
- Remember you are dealing Special Loans. Remember you are not dealing with your regular account manager. Banks have departments specifically tasked with dealing with companies in financial distress. These departments have various formal titles, but are commonly referred to as “Special Loans“. The thing to remember is that the Special Loans officer has no history with the loan, no attachment to your business and simply wants to achieve a positive result for the bank. The Special Loans officer is experienced in distressed accounts, used to dealing with lawyers and other insolvency professionals and is primarily interested in resolving the account as expeditiously as possible. Despite how it may sometimes seem, Special Loans officers also have no particular animosity towards your business – they deal in practical solutions. Typically, they are willing to work with you if you are up front with them and diligent in your recovery process. It is important that they have confidence in you and your efforts.
- Approach Special Loans as early as possible. If possible, do not wait for Special Loans to contact you. Rather, approach your regular loan officer and advise them that you are encountering financial difficulties. The earlier the approach, the more solutions and options will be available to you. In addition, delaying your contact with the bank when there are obvious problems can sometimes lead to an implication to the bank that you have been hiding your problems. As mentioned above, Special Loans appreciates clients who are forthright. If they lack trust in management, it is extremely difficult to complete a financial restructuring.
- Identify the specific problem. Special Loans will want to know why the loan is in distress. Obviously, there are many possible reasons, which may be intertwined. General economic conditions, unexpected events such as loss of a major client or supply, and obviously the recent COVID-19 pandemic. Be prepared to tell your story. Your insolvency lawyer can assist you with your presentation.
- Show that you have been working on the problem. If there have been steps you have already taken to address your financial distress, do not hesitate to advise the bank of this fact. You may have already reduced your staffing or other costs, sold some non-core assets or engaged in refinancing efforts. Retaining the assistance of insolvency professionals also shows the bank you are serious about resolving your issues.
- Have a plan. It is always helpful to approach the bank with at least the outline of a restructuring plan. It is not necessary that this plan be fully developed in detail, but if there is an outline, you should present it. There are many options for a financial restructuring, including simply obtaining time to get back on your feet through a forbearance agreement with the bank, informal restructuring through sale of assets or divisions of the company and cost reductions, or Court assisted restructurings, including CCAA (Companies’ Creditors Arrangement Act) or bankruptcy proposal proceedings. Within these options there are many combinations. Your insolvency professional can advise you on the pros and cons of the various options. The bank will appreciate it if you can present it with a plan from the outset.
- Use insolvency professionals. Insolvency professionals are lawyers, CA firms and financial advisors who have experience in restructuring, receivership and bankruptcy. Special Loans officers know these firms well, having dealt with them on countless matters. Special Loans will be able to work with these professionals, knowing that they have experience, are trustworthy and are providing reasonable and sound advice. While every insolvency has different nuances, in general, your insolvency professional has seen this situation before and can help you work out a plan to extricate the company from its difficulties. Going it alone should not be an option at this stage.
- Be prepared to work. Financial restructuring is not easy. It requires focus, energy and resources, including the cost of retaining insolvency professionals. This is why the first question “is the business worth saving” is so important. If the business is worth saving, the time, energy and expense is worth it. You owe it to yourself, your employees and other stakeholders to consider all options carefully before making such a decision.
At Field Law, we are more than ready to assist you in your efforts to deal with financial distress. We have lawyers at every level of experience and cost and are prepared to work out a plan which is within your budget and will be effective.