CROs have become the new best friends of distressed businesses.
But what is a chief restructuring officer exactly – and could appointing one be the saviour that your business has been looking for?
Objective, practical and realistic, these interim executives are able to take a failing company by the horns, identify what’s going wrong and work quickly to turn things around.
While common in the US and Europe, CROs are only recently gaining traction here in Australia – accelerated by the recent ’Safe Harbour’ legislation.
By protecting directors, from insolvent trading which is now possible, as long as a business turnaround plan is in place.
What is a chief restructuring officer’s main role?
A chief restructuring officer main role is to step in and becomes a ‘life raft for the business in the sea of rising debt.
Instead of existing directors implementing a turnaround plan themselves, a CRO devises a turnaround plan for board approval and then executes one for them.
While they manage working capital, a turnaround plan is never just financial. It also involves making big organisational and managerial changes.
The appointment of a CRO offers the insight of an independent expert who is often better placed to make faster, smarter, more impartial decisions that can lift a business out of financial distress and secure its long-term stability.
In turn, this can remove much of the strain that this situation creates for directors.
No CRO? Here are the potential roadblocks…
Without the help of a chief restructuring officer, you will likely encounter some issues that many businesses in trouble face.
These can block the path to a restructure and turnaround that can potentially save the company. They include:
- Being unable to secure refinancing with banks;
- Unsuccessful negotiation with creditors;
- Inaccurate cash flow forecasts and bad liquidity management;
- Poor relationship management with banks, creditors and suppliers; and
- Failure to accept change and maintain staff morale.
Some of these roadblocks are down to the directors being too emotionally involved in the business, time poor or tactically blindsided.
Others are due to the engagement of existing managers who lack the specific crisis management skills or communication know-how to deal with affected and invested stakeholders.
The turnaround expertise of a chief restructuring officer
Because of their specific knowledge and business expertise, chief restructuring officers are able to bash through these kinds of roadblocks.
With their unique competencies, they can:
- Significantly improve cash flow in the first 100-150 days;
- ‘Sell’ the turnaround plan to key stakeholders and staff;
- Rebuild lost stakeholder trust;
- See through the internal mind blocks and quickly identify the big changes that are necessary; and
- Suggest initiatives that management teams may be unaware of.
When should you appoint a CRO?
The appointment of a chief restructuring officer should happen as soon as a company realises it’s in trouble.
Acting fast can improve the outcome so it’s important to know the insolvency warning signs.
Before engaging a CRO, the terms of this broad role should be clearly defined and agreed upon. Make it clear where they have complete control and when the directors or management will need to be involved.
How quickly a chief restructuring officer can lead a company out of trouble towards stability depends on the state of distress they encounter. It can take months or even years.
Hire a reputable CRO
While the law has made way for chief restructuring officers to come in and do their thing, there is still no accreditation scheme in place to control who they are.
Because of this, it’s crucial that businesses look to employ a reputable expert with the right experience to turn around a company.
Contact our turnaround and insolvency experts today for a free consultation.