Wednesday , September 19 2018

Mechanism of a collapsing company (2)

TO initiate a rescue plan for a collapsing company, there should be an urgent need for precise diagnosis of factors which triggered the company’s downfall in order to start thinking about necessary rescue remedies.

The rescue plan starts with sedatives like curbing expenses and preventing the company from further decline by holding its position, which is considered more difficult than applying remedial solutions that are expected to bring the company towards recovery.

The most needed step is to conduct a quick but detailed diagnosis by experts who lived through such crisis. They should be characterized with integrity and experience which will help them solve the deteriorating situation of the company.

As rescue measures are explored, some instinctive questions might cross the minds of many such as: Why not allow the company to meet its fate? Why exert resuscitation effort on a patient who is already on deathbed? Wouldn’t that be a reward for its management? Will the cost for rescuing it be more than the cost of its existence, in other words, is the bird bigger than the nest?

These questions and many more are valid, rational and possible. However, in this case, the company might severely suffer in various ways such as the demands of creditors like banks, internal dues like leasing charges and delayed salaries, let alone lawsuits which could be filed against the company due to delayed liability settlements.

The company could also suffer moral tremor when it loses confidence and integrity, whether from its clients or employees. This could reach a point where the long time clients and employees will deal with rival companies due to the miserable state of the company in question.

At this stage, the parent company decides to appoint a temporary management board for a limited period and with a clear mission, which is to rescue the collapsing company. This new temporary management is given full authority to deal with the situation in a manner that will facilitate the rescue plan of the company.

By this time, the parent company has demonstrated its seriousness in saving one of its subsidiaries. With the first board meeting, the outcome is as follows: stopping dismissal and hiring of employees at least temporarily. This will restore confidence and integrity at least on the part of employees.

Another decision is to pay delayed salaries if the company can do so, partial settlement of delayed rents and payments for suppliers, and inform major creditors about the measures which the new management will be taking to rescue the company. These are among the steps that should be taken and more will come in the next article.

Twitter@alzmi1969

By Yousef Awadh Al-Azmi

 

 

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