As a result of Covid-19, many companies have been hit hard and are now in a particularly challenging situation where major changes are required to make the business profitable.

For some companies, the pandemic has created an urgent need for a major change to address challenges that existed before the pandemic and for other companies and industries, the pandemic in itself has affected the market so negatively that demand has more or less ceased.

We have talked to Anna Palmérus, Managing Partner at Vinge in Gothenburg, specializing in Reconstructions & Insolvency, to discuss the importance of acting early.

Anna started at Vinge’s office in Stockholm in 1999. In 2008 Anna moved together with her family to Gothenburg where she has her roots. The global financial crisis that took off in 2008 and 2009 led to an increase in the number of bankruptcies, reconstructions, and activities with insolvency and Vinge’s insolvency group, which is particularly strong in Gothenburg, had a lot to do.

“To help companies with insolvency issues and the professional role in bankruptcy and reconstruction was incredibly stimulating and I felt that I wanted to continue on this path. In Gothenburg, we often specialize in two areas, so in addition to Reconstructions & Insolvency, I also specialize in EU & Competition Law, which I specialized in during my time at Vinge’s office in Stockholm.”

Working as a lawyer in insolvency law encompasses a wide area ranging from advising the management of clients who either themselves have financial problems in their companies or who have clients or suppliers with financial problems, to take assignments as a formal accountant, bankruptcy manager or liquidator.

How do you feel your business has changed this Spring as a result of Covid-19?

“We have seen an increase in the demand for counselling regarding what to consider if you run into financial difficulties and how to act to avoid or limit financial difficulties. We also have more questions about how to protect their own rights and interests if you have customers and suppliers who are at risk of, or have run into, financial difficulties.

In April, we saw a clear growth in the number of bankruptcies and restructurings in Sweden compared with 2019, but in May and June, things have calmed down as many companies have done crisis management, adapted their operations to the prevailing situation and sought support from authorities. However, it remains to be seen what the long-term effects of the pandemic will be and what will happen when the support ends. For several companies, the market conditions are likely to continue to change in the future as well. changed demand. This also applies to well-managed companies with a fundamentally profitable business. Only those who have made the necessary changes to meet the changing demand will have the prerequisites for a long-term profitable business. To face reality is extremely important.”

How have your clients’ needs changed?

“It is clear that market conditions have changed significantly for many businesses. The demand for goods and services has to a large extent, in whole or in part, fallen away for some companies because of governmental restrictions. For many of our clients, it has been difficult to run the business with a profit. In addition to an increased demand for insolvency counselling, we have therefore also seen an increased demand for labour law issues and advice on contract interpretation such as how you can/should act according to their contracts when deliveries fail and you cannot deliver to your customers.”

What is the first thing a company should do when facing a major change or crisis?

“The first thing to do is identify what is the cause of the change/crisis and how it affects the business. Then you need to consider what actions you can take to get back your profitability and what action options you have to make the necessary change. Common business issues include: Can we renegotiate contracts? What does our financing look like? Do we need to change our business model? Do we have the right skills? This is where the legal stuff comes in and we can support and advise our clients on how they can act to achieve the best possible results.”

Why is it so important to act quickly from a legal point of view?

“The earlier you act, the less intervention you usually need to take and the likelihood that you can avoid reconstruction or bankruptcy increases. If you act early, you usually have more flexibility and more options for action – both commercially and legally. At an early stage, it may be enough to negotiate with, for example, banks, landlords, customers, or suppliers. In many cases, you can make instalment plans or negotiate a write-down of debt. However, in a situation like the current situation, suppliers and customers are often in a difficult situation. Still, there are profits for both parties to negotiate – a long-term business relationship can often be more valuable than demanding full pay at the moment. All parties must ask the alternative question: If I say no and my contract partner goes bankrupt – do I get my money, and do I still have my customer? Can I find new customers? You need to think about what the best in the long run is.

If the negotiations are unsuccessful or the crisis has become too deep before acting, more intervention is needed, such as reconstruction or bankruptcy. One of the benefits of restructuring is that it provides bankruptcy protection. Within the framework of reconstruction, there is also the possibility of seeking an arrangement with creditors where you can negotiate your debts. In the event of a bankruptcy, a bankruptcy trustee is commissioned to terminate the company’s operations – for example, by reselling the business to be able to pay as much of the company’s debts as possible.”

What are the most important aspects of a business and management group point of view?

“The most difficult thing for many companies is often to objectively analyse their company and its operations. Not everyone can do so and there is often a need for someone from the outside to help with the analysis. Once you have identified the need to act, it is important to identify what steps that needs to be taken to make the necessary changes and that there is then someone in the company who can run the process. A change process of this kind often becomes more successful if it is run by someone with experience in similar situations and not many companies have that knowledge internally. In such situations, it is often a great advantage to include someone from outside who has such experience, such as external financial and legal advisors, but also an external person supporting the board and the management team in driving the change quickly and efficiently.

My piece of advice is to start early on and dare to share your thoughts with someone who is experienced and has made this journey before. The earlier you can identify and fix the problems, the more chance you have of succeeding and at a lower cost. Both in terms of time, money and reputation.”