An independent business review (IBR) is often required when an outside party, usually a secured lender or funder, believes that a company or group of companies is showing signs of entering a distressed or insolvent state.
Who asks for an Independent Business Review?
The bank or investors will often be concerned that the information flow from management is not good, or fast enough and so they may ask to send in experts in corporate finance and insolvency to establish the solvency of the viability and value of the business. The review usually looks at market, management and money aspects too.
This may happen when the lender is worried that their lending is at risk, or the company is at risk of collapse. Occasionally, the bank will be concerned that management are not reacting fast enough to challenges and business or creditor threats. It is usually carried out by the insolvency department of an established large accounting practice, possibly along with colleagues from a corporate finance or perhaps their turnaround department.
Although the IBR is used to report directly to the lender, it is the company that pays for it. Given that it needs to be a thorough assessment of the business's financial situation, the process can cost anywhere between £12-50,000 depending on the size of the company or group complexities. However, the IBR should also help the company to identify areas that need attention and may give the funder a better peace of mind. Should the results be favourable the borrower may be able to continue with current or even increased borrowing facilities. There will need to be a business recovery plan and that recovery plan needs to be credible and in essence vetted by the IBR authors.
If the results are not favourable, then the process can often lead to the AMA or accelerated mergers and acquisition process . Please be sure to read the AMA guide next, as it is vital to understand how banks can effectively allow the IBR team (or an independent insolvency practitioner) to move to take control of the insolvency process. Directors can quickly find that they’re no longer in real control of the destiny of the company.
What information is required for an Independent Business Review?
- current trading and financial position;
- current balance sheet and risks to asset values;
- profit and cash flow projections; if the company don’t have these then they will work to produce detailed models for an extra fee;
- business and financial strategies;
- the business plan, the marketing plan and management’s plans to deal with threats;
- management ability, SWOT and systems, possible management gaps and possible improvements
- sensitivity analyses on all forecasts;
- management ability, SWOT and systems;
- the marketplace and competition;
- corporate and group structure;
- bank security cover; and they will need to produce a statement of affairs for the likely insolvency outcome;
- This will show the comparison of outcome for the bank or lenders, should the company enter administration #;
- It is likely that an external valuation will be required to support the SOFA production;
- The review will conclude with a recommendation to the lenders to either continue to support the management to restructure the business or to move to an accelerated mergers and acquisition process.
As you can see it will be a very comprehensive report on the business, the company and the management. The management team will be required to take part in the process but may not be shown the final section of the report that contains the recommendations to the lender. The report may lead to the funder appointing administrators to protect their debt position. This administrator may, or may not be, the firm that carried out the independent business review.
If you think your business or companies may be in difficulty, we can look at the options at a free face to face initial meeting followed by a solutions report (for which we do not charge). This report mainly establishes whether the business is insolvent or not and looks at the position of all of the creditors. As such it can advise on the options and give you a way forward.
The recommendation in our solutions report may be that THE COMPANY appoints KSA Group (who operate www.companyrescue.co.uk) to prepare the IBR – independent business review - for the board. This can be a hugely powerful tool to then meet with lenders and creditors to set out the TURNAROUND plan. This would be supported by an IBR prepared by a firm of licensed insolvency and turnaround practitioners. This looks positive and proactive to the lenders – demonstrably management is acting quickly and taking professional advice.
It goes without saying that most boards take FAR TOO LONG to act, when the company starts to enter the distressed phase, so we would always recommend being proactive in a recovery scenario.
If your lender is suggesting you need an IBR, call Gary Weber, our national turnaround manager on 07739 325008 or Sarah Massey on 0800 9700539 if you would like to arrange a free initial assessment meeting.
I am a lender and would like a company like KSA Group to do a review of the business!
I am a lender / investor and would like a company like KSA Group to do a review of the business.
We can and do act for investors, lenders and other stakeholders of distressed companies. As we start from a rescue and turnaround perspective, we will interview and assess management and sense any management gaps. We will look at recovery options from trading out, CVA to AMA and refinancing options. We will produce a detailed SOFA and independent financial models. KSA will also take the board through all turnaround and insolvency options. Then we will make detailed recommendations to you.
Why not have a look at our sample IBR to get an idea of the type of IBR we can provide.
Categories: Implications for Directors
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Please note that the guide includes updates due to Covid-19 For instance there have been some changes to insolvency legislation that limits creditors actions and relaxes rules regarding wrongful trading. A new 20 day moratorium for distressed businesses has also been introduced.