The bank crisis, high interest rates, and geopolitical tensions continue to weigh on economic activity worldwide. The Organization for Economic Cooperation and Development (OECD) recently reported that the global economy will continue to recover and grow, although at a slower pace than in 2022. And while the economic outlook is “slightly more optimistic but fragile” there are potential risks and challenges that could impact economic growth.
The impact on the capital markets industry has led to widespread financial distress and bankruptcies across a range of sectors. Innovative new financial products and services and the globalization of financial markets has led to increasingly complex financial instruments and transactions over the last 10 years, including a rise in cross-border transactions. In addition, regulators have introduced new rules and regulations aimed at reducing systemic risk in financial markets globally. This also added a level of complexity as market participants seek to comply.
The role of bankruptcy and restructuring strategies in capital markets
Bankruptcy and restructuring strategies have always played an important role in the capital markets industry, helping businesses struggling financially to reorganize and emerge stronger. In times of economic turmoil and uncertainty the demand for independent service providers increases significantly.
Bankruptcy and restructuring strategies are complex and require specialized expertise in corporate finance, accounting, and law to help minimize impact on stakeholders, including noteholders, lenders, and shareholders. The process involves reorganizing the business and its finances to maximize value and pay back creditors. The goal is to provide a fresh start for the business and allow it to emerge from bankruptcy as a stronger and more viable entity.
Assessing global restructuring options
There are several types of bankruptcy and a variety of restructuring strategies available to businesses. To determine which type of strategy is most applicable, an assessment of the extent of the financial difficulties is made. This analysis is usually conducted by financial professionals such as bankruptcy attorneys, financial advisors, and accountants. The first step in determining which type of bankruptcy or restructuring strategy is needed is to assess the extent of the financial difficulties.
An assessment involves review of the company’s financial statements, including its balance sheet, income statement, cash flow statement, and the company’s debt obligations, including the types of debt and terms of debt agreements. Financial professionals can then determine which type of bankruptcy or restructuring strategy is most appropriate. This can differ widely depending on where the organization is domiciled.
In the U.S., for example, if the company has significant debt but can reorganize and continue operating, Chapter 11 bankruptcy with a plan of reorganization may be the best option. If the company is unable to continue operating and needs to liquidate assets to pay off its debts, Chapter 11 bankruptcy with a plan of liquidation or Chapter 7 bankruptcy may be more appropriate.
In Europe and APAC, the bankruptcy laws and processes vary between countries. There is a common framework for insolvency proceedings across the European Union (EU), known as the European Insolvency Regulation (EIR). The EIR governs cross-border insolvency cases within the EU and provides for the automatic recognition of insolvency proceedings in all EU member states.
If the financial difficulties are less severe, other types of restructuring strategies such as debt consolidation or restructuring may be more appropriate. In any case, it is important to work with a qualified financial professional to determine the best course of action.
Qualified financial professionals who can help
Independent service providers are beneficial in providing an objective and unbiased perspective of a company’s financial situation. Because they are not directly involved in the management or operation of the business’s finances they’re able to provide an impartial evaluation of the financial situation. This is useful in determining the appropriate course of action as they help identify the underlying causes of financial distress, assess the viability of various restructuring options, and provide an objective evaluation of the potential risks and benefits associated with each option.
Bankruptcy and restructuring strategies have become increasingly important in today’s economy, as businesses face numerous challenges and uncertainties. Looking ahead, the economic outlook for many sectors remains uncertain, as businesses continue to adapt to changing market conditions, regulatory pressures, and other factors. Bankruptcy and restructuring strategies will remain essential tools for companies seeking to manage risk, stay competitive, and emerge stronger from financial challenges.
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