Leap Forth

  • About
  • Business Intelligence
  • Accounting
  • Consulting
  • Learning
  • Contact
  • About
  • Business Intelligence
  • Accounting
  • Consulting
  • Learning
  • Contact

Feed the mind

How to restructure defaulted banking facilities (part 3)

19/6/2013

0 Comments

 
Effective Strategies in Loan Restructuring 

Having understood and appreciated the bank’s internal restructuring procedures mean that the borrower has the upper hand when conducting negotiation with the bank.  This, of course, assumes that the bank is willing to proceed to loan restructuring as opposed to commencing legal actions to wind up the company.

Naturally, all borrowers would always aim for a successful restructuring.  In general, the restructuring process can be considered successful (from borrower’s point of view) if:

a.                   The restructuring is completed speedily
b.                  The loan can be rescheduled for the longest possible time
c.                   Minimum resources (time and fees) were spent on the restructuring
d.                  The agreed terms and conditions are to the borrower’s advantage
e.                   In the event of settlement, maximum hair cut / waiver is obtained.

Public listed companies will have more choices as to the techniques used for restructuring (e.g. debt equity conversion, issuance of new shares, rights issues, issuance of other security papers etc). 

For private limited companies, the choices are extremely limited.  If not handled with care, chances are high that bank will commence legal actions to wind up the company, even though it is still a viable operation (at least from the borrower’s point of view).

The Practical Approach in Restructuring Defaulted Loan 

Now let us be practical.   To resolve bad loan, companies need to have cash and the cash has to come from somewhere.

Notwithstanding the various restructuring techniques (e.g. issue shares, rights issue, issuance of security papers etc), the fact remained – there is a need to raise sufficient cash to settle the bad loan or face legal actions from the banks.    If the cash is not forthcoming, for whatsoever reasons, the bad loan problem remained unresolved and winding up is the only eventuality.

Hence, borrower may want to consider the following actions to either resolve the problem or at least delay the problem until business turns around:

a. Rescheduling
Banks are generally agreeable to extend the tenure of repayment.  With the extension, the monthly repayment will be more affordable or in line with the company’s reduced cash flow.  To successfully obtain the consent from banks to reschedule, there is a need to prepare a Restructuring Proposal (detailing the pertinent information about the company) in order to support the rescheduling.

b. Pay interest only
As a general rule of thumb, as long as interest is up to date, banks are rather unlikely to take drastic action such as commencing legal actions.  In fact, even if cash flow permit to pay certain amount of installment, it is always advisable to conserve the cash for certain “down” months.  This will ensure that interest servicing is prompt regardless of business uncertainty.

c. Request for waiver on overdue / penalty interest and/or hair cuts
Company that intends to fully settle the bad loan with cash may request for certain waivers such as overdue interest and also some hair cuts.

d. Apply for rehabilitation fund
Eligible borrowers can apply for the Rehabilitation Fund, which is made available by Bank Negara.  With the additional fund, it can be used for working capital to generate more cash flow from operations (which can be used to pay down the existing bad loan).  All commercial banks participate in this rehabilitation fund.

e.Delay legal actions
If the banks are commencing legal actions, the borrower may want to seriously consider delaying the legal actions.  However, there are always drawbacks in challenging the banks in the court.

f. Consult with Bank Negara (Central Bank)
If the borrower feels that it has been unfairly treated or its reasonable proposal has been turned down repeatedly, then the borrower may want to seriously consider referring the matter to Bank Negara.

g. Last resort
If all the above actions failed, the borrower must prepare itself for winding up (and personal bankruptcy) by maximizing its net wealth through proper assets management.

It should be emphasized that, throughout the loan restructuring process, it is extremely important for the borrower to be diplomatic, patient and maintain regular contact with the bank’s representative at all times.

At the end of the day, relationship banking still plays a vital role in the success of the whole restructuring process.

Read the final part here.
0 Comments

Your comment will be posted after it is approved.


Leave a Reply.

    About

    Business, economy, education and current issues.  Providing tips, tricks and tools in managing business.


    Archives

    July 2022
    June 2022
    May 2022
    April 2022
    March 2022
    February 2022
    January 2022
    December 2021
    November 2021
    October 2021
    September 2021
    August 2021
    July 2021
    June 2021
    May 2021
    April 2021
    March 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    June 2020
    May 2020
    April 2020
    March 2020
    February 2020
    January 2020
    December 2019
    November 2019
    October 2019
    September 2019
    August 2019
    July 2019
    June 2019
    May 2019
    April 2019
    March 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    June 2018
    May 2018
    April 2018
    March 2018
    February 2018
    January 2018
    December 2017
    November 2017
    October 2017
    September 2017
    August 2017
    July 2017
    June 2017
    May 2017
    April 2017
    March 2017
    February 2017
    January 2017
    December 2016
    November 2016
    October 2016
    September 2016
    August 2016
    July 2016
    June 2016
    May 2016
    April 2016
    March 2016
    February 2016
    January 2016
    December 2015
    November 2015
    October 2015
    September 2015
    August 2015
    July 2015
    June 2015
    May 2015
    April 2015
    March 2015
    February 2015
    January 2015
    December 2014
    November 2014
    October 2014
    September 2014
    August 2014
    July 2014
    June 2014
    May 2014
    April 2014
    March 2014
    February 2014
    January 2014
    December 2013
    November 2013
    October 2013
    September 2013
    August 2013
    July 2013
    June 2013
    May 2013
    April 2013
    March 2013
    February 2013
    January 2013
    December 2012
    November 2012
    October 2012
    September 2012
    August 2012
    July 2012
    June 2012
    May 2012


    Tags

    All
    Accountant
    Accounting
    Active Listening
    Aeon
    Alibaba
    Allen Stanford
    Amy Cuddy
    Animation
    Articial Intelligence
    Bernanke
    BI
    Brain Rules
    Brene Brown
    Budget 2022
    Business
    Business Intelligence
    Business Model
    Cash Flow Management
    Ceo
    Change
    Cloud
    Coca-cola
    Collapse
    Covid-19
    Creativity
    Culture
    Daniel Zhang
    Dashboard
    Data Science
    Data Studio
    Digital
    Digital Free Trade Zone
    Disruption
    Dr Eric Berg
    Dr Oz
    Dr Richard Teo
    Economy
    Edmondson
    Edward De Bono
    Ego
    Eric Schmidt
    ESG
    Excel
    Exercise
    Failure
    Farmland
    Finance
    First Article
    Fraud
    Free
    Fund
    Garr Reynolds
    Gaur Gopal Das
    George Carlin
    Global Crisis
    Google
    Google Docs
    Growth
    GST Malaysia
    Harvard
    Harvard Business Review
    Health
    Hubdoc
    Inflation
    Innovation
    Inspiring
    Insurance
    Investment
    Ipo
    Jack Ma
    Jack Welch
    Jim Rogers
    John Kotter
    John Medina
    Kai Fu Lee
    Ken Segall
    Kicc
    Kiss
    KPI
    Leadership
    Liquidation
    M&A
    Machine Learning
    Management
    Managing Cash
    Maradona
    Marketing
    Mastermind
    Maxton
    McKinsey
    Meeting
    Meryl Streep
    Milton Friedman
    Mit
    Mohamed El-Erian
    Motivation
    Napolean Hil
    Negotiation
    Obesity
    Online Education
    Paperless
    Partners
    Peter Drucker
    Pimco
    Pivottable
    Planning
    Play
    Power BI
    Powerpoint
    Presentation Zen
    Princeton
    Procter & Gamble
    Productivity
    Property
    Recovery
    Responsibility
    Rest
    Restructuring
    Retirement Planning
    Reverse Mortgage
    Robinson
    Roubini
    Salary
    Seth Godin
    Simon Sinek
    Simplicity
    Sir Ken Robinson
    Sleep
    Smoking
    Startup
    Stephen Chow
    Steve Jobs
    Strategy
    Stress
    Sugata
    Tan Le
    Tax
    Team Work
    Technology
    Thomas Cook
    Tony Fernandes
    Toys R Us
    University Of Toronto
    Valuation
    Vietnam
    Vistage
    Warren Buffet
    Wealth
    Welcome
    WeWork
    Xero


Powered by Create your own unique website with customizable templates.