Restructuring Report IDW S6 / BGH

Crisis? Surmountable!
Turnaround? Fundable!
Future? Feasible!

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Between business sense and legal requirements – restructuring reports according to IDW S6

Companies whose managing directors or board members are required to provide an IDW S6 report usually have a financing problem, have to face tough questions, and need reliable answers.

Questions that meet the legal requirements, but preferably also reflect business sense. In a nutshell: They need a qualified and meaningful testimonial on how seriously viable the company is in future, and they need it fast! For this purpose, the Institute of Public Auditors in Germany (IDW) has developed a standard reporting system (S6), which was last updated in 2018.

With four questions for a positive going concern forecast

As part of the reorganisation report in accordance with IDW S6, a positive going concern forecast must first be issued. This is essential in order to be able to obtain debt capital in the future. In order for a company to be certified as a going concern, these four questions in particular must be answered convincingly:

1. Crisis management

Is the company fundamentally in a position to overcome the crisis situation?

2. Planning of measures

What performance and financing measures need to be taken to achieve this?

3. Refurbishment programme

Which specific refurbishment concept needs to be implemented and in what timeframe?

4. Financial planning

What does the corresponding short and medium-term financial planning look like?

What is it all about?

Determination of the company's ability to continue as a going concern with regard to a possible risk of insolvency.
The company's ability to restructure with a view to its profitability and competitiveness.

This means: "Ability" to continue as a going concern’ exists if the company is fully financed during the forecast period of the reorganisation concept - i.e. there is no threat of insolvency! With regard to profitability and competitiveness, the following applies: Competitiveness and therefore also refinancing capability is given if the company can refinance itself on the free capital market. This requires a customary return and an adequate level of debt as well as an appropriate equity base.

What to do if you have an acute need for cash?

An important prerequisite for both "reorganisation stages": In the event of acute illiquidity, not only specialist lawyers, but also well-founded countermeasures must be defined and consistently implemented within two, maximum three weeks. We are also happy to support you with this.

Core components of the report

Description and analysis of the initial economic and legal situation
Determination of the crisis stage and causes of the crisis
Presentation of the mission statement with the business model of the reorganised company
Concretely effective financial and operational measures for crisis management
Creditor groups and planned modifications to rights, claims and collateral
Medium-term financial planning with holistic consideration of the defined reorganisation measures (integrated reorganisation planning)
Declaration of sustainable restructuring capability

Success factors

Very high acceptance in companies and among financiers
Holistic performance-based and financial refurbishment concept
Consistent refurbishment measures with a realistic implementation roadmap
Holistic business model assessment and implementation expertise
Particularly important: professional stakeholder management

Interim conclusion

The purpose of the appraisal of companies in crisis is firstly to determine how the crisis came about and what stage of crisis the company is in - in particular, it must be clarified whether there is a risk of insolvency.
To this end, the company's net assets, financial position and results of operations must be determined and evaluated. The assessment of the company's own figures must of course be carried out with a view to the competitive environment. Among other things, it must be determined where the standard industry return lies and what the equity capitalisation of the company in crisis is like.

The actual restructuring work

Planning and presentation

Planning and presentation of an outlook for the reorganised company and its pre-requisite value-creating business model.

Averting pending insolvency

Deriving measures from the above which are necessary to avert insolvency and realise the target status per the stated outlook, with timeline and quantification.

Restructuring plan

Integrated liquidity, earnings and assets planning are extremely important for financing partners.

In addition to this core operational and financial data, the restructuring audit and/or plan should also outline specific answers to questions including how digitalisation will impact the business model.

Conclusion

The restructuring report in accordance with IDW S6 follows a clear structure and fulfils the minimum requirements of the Federal Court of Justice. The legal acceptance is therefore very good.

The quality of the reorganisation report in accordance with the IDW S6 standard is decisive for further external financing and thus for securing the future of the company in times of upheaval and crisis. However, this also makes the quality of the reorganisation consultant critical to success.

Why Struktur Management Partner?

Our turnaround experts are the right people to contact for a qualified answer to these questions and a proper assessment in accordance with IDW S6. This is because the preparation of a turnaround report in accordance with IDW S6 requires extensive expertise and experience and must be carried out by independent and qualified specialists. This is also because a corporate crisis brings with it numerous legal implications that need to be considered (e.g. insolvency and labour law). In addition, the requirements formulated by the Federal Court of Justice in its previous case law must be observed. The use of external specialists is in line with the case law of the highest court.

Based on over 700 concepts and a sophisticated methodology, our specialists can show you how they understand companies in crisis and the associated problems and develop solutions to help you achieve entrepreneurial independence.

Successful reorganisation concepts
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Success rate
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Our book: Modern reorganisation management - new edition.

Restructuring as a holistic task: strategic realignment, operational improvement and financial stabilisation: Our standard work with a comprehensive overview of all facets of reorganisation, insolvency and restructuring is now in its 7th edition. Including chapter contribution by SMP on successful performance-based restructuring and extensive working materials for download.

Contact

Marc-René Faerber Managing Partner Diploma in Industrial Engineering, EMCCC (Insead)

Monika Dussen Partner Diploma in Industrial Engineering