Every company has a unique life cycle. Throughout the life cycle, companies are tracking successes and failures, depending on the various factors that affect their business. Situations such as financial distress , idleness, or bankruptcy represent the fundamental levels of a company's life cycle. The purpose of the paper is to present the financial restructuring of the company in business problems on the example of the Agrokor Group. This paper describes the operations of the Agrokor Group from 2007 to 2017, ie it is divided into business analysis prior to the extraordinary administration and in the procedure of extraordinary administration. The characteristics of Agrokor Group's operations prior to extraordinary administration are: low liquidity and negative working capital over the observed period, extended payment of obligations to suppliers ranging from 110 to 211 days, ie 156 days on average, increased indebtedness and high indebtedness and insolvency in 2016, solid Group's activity ratios , positive profitability by 2015. With the advent of extraordinary administration , inappropriate corporate governance has been identified, and audit results show that accounting irregularities and potential illegal actions have been identified. Claims recognized amounted to HRK 31.04 b illion , while disputed claims amounted to HRK 10.4 b illio n. The Group has a financial arrangement of EUR 1.06 billion with super senior status. In addition, the complex structure of claims is emphasized. Bearing in mind all the above, the Group's financial restructuring is possible with the new corporate structure, the new capital structure, the allocation of financial instruments to stakeholders. Returns to creditors should be defined by the entity's priority model. Group value would be distributed among stakeholders based on their legal rights, ie the model's rank. The value of each claim claimed is determined by the fraction of the total distributable value that it needs to receive. After that, it will determine how many depositary receipts and the exchangeable bonds each creditor receives.
Table of Contents
1. Introduction
2. Theoretical background and previous research
2.1 Financial difficulties
2.1.1. Levels and types of business difficulties
2.1.2. Causes of financial difficulties
2.1.3. Eliminating financial difficulties
2.2. Bankruptcy Forecasting Techniques and Models
2.2.1. Financial ratios
2.2.2. Discriminatory analysis
2.2.3. Linear probability model
2.2.5. Logit model
2.3. Restructuring of companies
2.3.1. Restructuring scenarios
2.3.2. Participants in the restructuring process
2.3.3. Stages of the restructuring process
2.3.4. Advantages of corporate restructuring
2.3.5. Operational restructuring
2.3.6. Financial restructuring
2.3.7. Restructuring techniques
2.4. Bankruptcy Law
2.4.1. The tasks and objectives of bankruptcy law
2.4.2. Bankruptcy cost
2.4.3. An example of a good bankruptcy law - Singapore
3. Research description and research results
3.1. Bankruptcy Regulation in the Republic of Croatia
3.1.1. Bankruptcy Law in the Republic of Croatia
3.1.2. Law on the procedure of extraordinary administration in companies of systemic importance for the Republic of Croatia
3.2. Basic information and business characteristics of Agrokor Group before the extraordinary management process
3.2.1. Structure of Agrokor Group
3.2.2. Agrokor Group's performance indicators for the period 2007-2016
3.2.3. Agrokor Group business performance analysis based on business prediction model
3.3. Introduction of the extraordinary management and misstatement of the Agrokor Group's transactions in the financial statements of the previous period
3.4. Agrokor Group's operations in the extraordinary management process
3.5. Costs of operations and extraordinary administration
3.6. Debt analysis
3.6.1. Debt analysis as of 31.12.2016. years
3.6.2. Debt and claims analysis during the Extraordinary Administrative Procedure
4. Discussion
4.1. Restructuring of Agrokor Group
4.2. A model for determining the order in which subjects are settled
4.3. Financial restructuring of Agrokor Group
5. Conclusion
Research Objectives and Themes
The primary objective of this paper is to examine the process of financial restructuring within a company facing severe business difficulties, using the Agrokor Group as a comprehensive case study. The research investigates the characteristics of business decline, the impact of accounting irregularities on financial stability, and the legal frameworks employed during extraordinary administration to prevent total economic collapse and ensure business continuity.
- The life cycle of companies and the progression from financial distress to bankruptcy.
- Methods for forecasting business difficulties, including discriminant analysis and logit models.
- Strategic approaches to corporate restructuring, focusing on operational and financial recovery measures.
- The role and implementation of specific legislation for companies of systemic importance, with a focus on the Croatian legal framework and the Agrokor Group administration process.
- The analysis of debt structures and the reconciliation of stakeholder interests during settlement procedures.
Excerpt from the Book
2.1.1. Levels and types of business difficulties
There are several levels of business difficulties for companies. Altman (2006) has listed four terms that are encountered in the literature:
1. failure
2. insolvency
3. deaf
4. bankruptcy
Economic failure is considered when the realized rate of return on invested capital increased by provisions for risks is significantly and continuously lower compared to the returns on similar investments. It should be noted that different economic criteria can be taken such as insufficient income to cover costs or when the average return on investment is continuously less than the cost of capital of a company. Observed economic situations may be different in frequency and differently affect the survival of a company. Management decisions are based on expected returns and the ability of the company to cover variable costs. It is important to note that a company can be economically unsuccessful for many years, but that it never fails to settle its current liabilities due to the absence of debt or the absence of debt that can be recovered through legal means. Legal failure is considered when a company is unable to settle its legally enforceable liabilities. The term business failure was adopted by Dun & Bradstreet, which conducted various statistical surveys of unsatisfactory business conditions. A business failure is a company that has ceased operations after bankruptcy, one that voluntarily withdraws leaving arrears and one that is involved in some legal proceedings (eg reorganization), and one that compromises with lenders.
Summary of Chapters
1. Introduction: Outlines the life cycle of companies and introduces the business challenges faced by the Agrokor Group as a case study for financial restructuring.
2. Theoretical background and previous research: Reviews existing literature on financial distress, forecasting models like Altman's Z-score, and the strategies required for corporate restructuring.
3. Research description and research results: Provides a detailed empirical analysis of the Agrokor Group, its financial indicators, the legal procedures during its extraordinary administration, and a comprehensive debt analysis.
4. Discussion: Evaluates the practical application of restructuring plans, the settlement model used for claims, and the broader implications for the group's future sustainability.
5. Conclusion: Summarizes the key findings, emphasizing the importance of timely identification of business problems and the role of effective restructuring in managing systemic corporate crisis.
Keywords
financial distress, bankruptcy, financial restructuring, insolvency, Agrokor Group, corporate governance, liquidity, debt analysis, extraordinary administration, bankruptcy law, cash flow, operational restructuring, settlement, stakeholders, business failure
Frequently Asked Questions
What is the core focus of this research?
The paper examines the financial restructuring process of a major company in financial distress, specifically analyzing the case of the Agrokor Group and its transition through extraordinary administration.
What are the central themes discussed in this study?
Key themes include the life cycle of companies, diagnostic models for predicting business failure, the legal frameworks governing systemic corporate insolvency, and the practical challenges of debt restructuring and stakeholder management.
What is the primary objective or research question?
The research aims to present how a company in serious business crisis can be financially restructured and managed back to viability by identifying specific operational and financial causes of its distress.
Which scientific methods are applied in this work?
The study utilizes empirical financial analysis, incorporating liquidity, solvency, and profitability ratios, alongside established business forecasting models like Altman's Z-score and logit models to evaluate corporate performance.
What topics are covered in the main body of the paper?
The main body covers the theoretical background of financial distress, a detailed breakdown of the Agrokor Group's operational history, the specific legal framework (Law on the Procedure of Extraordinary Management in Croatia), and an analysis of the settlement process and creditor claims.
Which keywords best characterize this work?
The work is best characterized by terms such as financial restructuring, insolvency, corporate governance, liquidity, and systemic importance.
How does the Agrokor case demonstrate the failure of corporate governance?
The paper highlights that the audit process revealed accounting irregularities, such as the misstatement of transactions and the concealment of loans, which indicated a failure to maintain standard governance practices common for a firm of that size.
What role does the 'Entity Priority Model' (EPM) play in the settlement?
The EPM is identified as the main criterion for determining the settlement amount for individual claims, providing a structured method to prioritize and distribute value among various groups of creditors based on their legal rights.
- Quote paper
- MA Drago Dević (Author), 2018, The Financial Restructuring of a Company in Financial Distress, Munich, GRIN Verlag, https://www.grin.com/document/507541
