Chemical producer rescued

Restructuring to avoid insolvency – a race against time

From Martin Jürgens2

It is now 14 months since the sword of Damocles hovered over Delta GmbH1 in January 2006 and the following months. 14 months in which serious cuts had to be made in and around the company in order to achieve the turnaround. The management of Delta GmbH then decided to appoint the experienced restructuring experts from Abels & Kemmner as interim managers in order to avert the threat of insolvency.

What happened that forced the management of Delta GmbH, in close consultation with its customers, to make this far-reaching decision?

The past financial year was not characterized by inactivity. Quite the opposite. Strategic decisions had been made in advance and numerous measures taken:

  • Development of an own product range in the field of chemical products in competition with the customer’s business
  • Relocation of a production plant to a shared location
  • Reorganization of two production companies into one production and one sales company.
  • The long-standing production company relocated and became a pure sales company at the location of the new production company.
  • Most of the staff moved from the long-standing production company and now new sales company to the new production company.
  • The new production company had been in the start-up phase for 9 months and had been expanded at the existing site in Baden-Württemberg with the employees and production resources of the old production company.
  • This organizational restructuring led to numerous disposals such as stock and machinery. The sales company took over all the finished goods, while the production company took over the raw and packaging materials.
  • The remaining sales company still had considerable liabilities, particularly to material suppliers from the production business, which could not be recovered in the short term.
  • The largest customer was not handled by the sales company, but had a supply contract with the new production company.

These far-reaching measures shook up the organizational structure considerably. The IT structure was not taken into account in advance, but an attempt was made to map the new status retrospectively. Due to this subsequent processing, a large part of the informative value was lost at times and some reports (e.g. for inventory management) no longer met normal requirements in some cases. Inadequate inventory management only revealed a huge inventory difference on the inventory date. This was then a major trigger for a subsequent chain reaction (with sales and asset transfers to balance the books). When one of the two managing partners threw in the towel in January 2006 and left the group of companies, there was an acute need for action.

Interim management and immediate measures

When the restructuring activities began, it very quickly became apparent that it was not just the structural, organizational and IT problem that had initially been suspected and discussed at the first meeting, but a tangible financial problem that needed to be tackled immediately. To this end, financial planning was set up at short notice in order to be able to present payment plans for outstanding creditors. Liquidity was created in the short term by, among other things, switching all products from the largest customer to material provision. In addition, payments withheld from customers were “loosened up” through an offensive approach. In some deadlocked situations, the external neutral assessment also helped, so that constructive solutions could be found. Once this bottleneck had been eliminated in the short term, it was time to get down to business: What went wrong and why was this situation so threatening to the company? Could the company still be saved? This is a very important legal issue with potentially far-reaching liability consequences for the shareholders as well! If so, how could the company still be saved?

The race against time began. The causes had to be brought to light immediately. With the help of the restructuring specialists from Abels & Kemmner, the company’s tax consultant, and in close cooperation with the largest customer, the company’s remaining management had to present a restructuring concept within a few weeks.

Cost transparency and planning calculation

The core of the restructuring concept was a business plan that had to return the company to profitability on the one hand and deal with the legacy issues that had arisen on the other. The sales and production companies also had to be consolidated for this purpose.

The new business plan was tested in a planning calculation for 3 financial years. The cornerstone of the planning calculation was a long-term supply contract over 4 years with the largest customer, in which the materials are provided and the pure filling, packaging (various products in one carton) and quality control remain as value-adding activities. The company benefited from the fact that it had supported the customer with great commitment in the past, even in a very critical delivery situation. This meant planning security for the utilization of almost 2/3 of production capacity.

The task now was to reduce the marginal employment rate as far as possible by cutting costs. The financing of the machines also played a significant role here. The greatest potential lay in production control with the elimination of faults and avoidance of downtime. This meant ensuring the supply of materials and the economical use of the liquids to be filled (optimum batch sizes and low losses during product changeovers) in order to make do with the calculated, planned and contractually agreed excess consumption.

The future core business, namely pure contract filling with materials provided by the customer, was calculated and, after reducing the marginal employment level through cost savings in all areas, it was possible to quantify the lack of capacity utilization and to wrest the necessary further increase in volume from the customer. With this further increase in the volume of the supply contract, the scenario began to pay off and a planning break-even point was reached. This naturally required the implementation of numerous cost-cutting measures, which had already begun in parallel (and ranged from the elimination of development costs to reduced logistics services, rental and disposal costs and the vehicle fleet).

In addition to pure contract filling, there was also the business for other customers, on whose behalf other private labels were produced without the provision of materials or even the company’s own products. These products were produced by the production company for the distribution company, which sold them to numerous well-known retail chains. However, a review of the calculations and contribution margin calculations revealed that very few products in this business segment were profitable, and most of them even made considerable losses. The cost transparency created ruthlessly exposed the loss-makers. In addition to miscalculations and predatory pricing to win new customers, this was also due to rising raw material prices and disposal costs (green dot).

Strategic decisions

At the beginning of February 2006, it was clear that this business segment, which had been built up in recent years, was not a new mainstay but a loss-maker. Entering the market with its own products had been expensive. Development costs incurred, tooling costs for the plastic bottles, etc. would no longer be amortized. An immediate and orderly withdrawal from the business with own products, which were produced for many well-known retail chains, became necessary. Of course, care had to be taken to prevent damage to the company through contractual penalties and the like. The task now was to convert the remaining raw materials and packaging materials for these products into liquidity as quickly as possible. In addition, after merging the 2 production sites into one location, a hall had to be rented to accommodate all the packaging materials, which resulted in considerable costs.

Once it had been demonstrated that a slimmed-down core business with pure contract bottling would pay off, the next step was to immediately reduce the financial burden. This is because current liabilities were largely offset by non-current receivables.


Talks and negotiations were also held with investors as an alternative to the scenario that was set up. The resulting calculated alternative courses of action were compared in a presentation to the house bank. Here it became clear which alternative course of action was favored and which the house bank was prepared to provide. In April 2006, a rescue was finally in sight!

It was now crucial to implement the debt waiver of all creditors (in the area of material deliveries and services) that was recognized as necessary in the planning scenarios. As this also meant walking a legal tightrope – simply by treating all creditors equally – an experienced lawyer was called in, for whom the consultants at Abels & Kemmner have carried out numerous restructuring projects for over 10 years, particularly in insolvency cases. The efficiency of the solution sought provided the framework for the overall potential for the repayment of liabilities. The different quotas ultimately offered were due, among other things, to the consideration of reservations of title. The debt waiver negotiations had to be conducted very quickly, as this was directly linked to the continued existence of the company. Failure would have resulted in insolvency proceedings. The approval of all creditors was obtained in May 2006. The quotas were implemented as part of the debt waiver negotiations. This meant that the remaining liabilities were repaid in 3 installments within 2006.

Both companies, the production company and the sales company, have now repaid their liabilities in agreement with their creditors to the extent of their ability to pay. The last installment was paid in November 2006.

The necessary strategic decisions taken were ultimately bought at the price of greater dependence on a single group of companies. However, this connection proved to be very trusting and resilient during the crisis.

Refurbishment measures in the further course of the year

Restructuring of the organizational structure

In the meantime, the previous entity/group of companies has also been merged/combined/streamlined into one company. From a liability perspective, the connection between the companies was so close that in the event of the insolvency of one of the companies, the others would inevitably have fallen with it. This means that the previously more complex order processing and demarcation between two legally independent companies, which was fraught with numerous stumbling blocks, can be brought back to a normal level.

A new production manager has now been found (in an orderly and unhurried manner) to continue the production increase measures that have been initiated, after an interim solution was initially used to bridge the gap. This new position was created because the remaining two managing directors were previously also jointly responsible for production, but have now taken over sole management, including finance and sales.

Optimization of business processes

Due to the changeover to the provision of materials and the remaining production with own materials, the delimitation of ownership of the materials represented a large work package. The different ownership structures could be mapped pragmatically via storage locations and controlled with defined booking flows.

Over the course of the past year, parts of the logistics process were further rationalized. Today, invoices are only issued with collective invoices per day and customer. This saves time and paper. As the receipt of goods by the customer (via their logistics service provider) is registered promptly by means of data reconciliation and taken into account when invoicing, any errors that may occur during delivery and invoicing are recognized immediately, unlike in the past. The number of problem cases during customer invoice verification has been drastically reduced to a minimum, payments are made more smoothly and liquidity planning has become more reliable.


It’s a good thing that the management of Delta GmbH (- at the last moment !!! -) made the decision in close consultation with its customers to commission experienced restructuring consultants. At the last moment, the financially ailing group of companies was saved from insolvency and a concept for recovery was developed, which was jointly supported by the parties involved – the company, employees, lenders, creditors and customers – and has since proved successful.

The importance of choosing the right restructuring consultant for the success of the restructuring is dramatically illustrated by this case. Another consulting firm had previously spent nine months developing detailed concepts and analyses against the backdrop of a “burning” group of companies, but had not made a decision and taken matters into its own hands.

1 For reasons of confidentiality, the name of the company has been changed

2 Martin Jürgens, Senior Consultant at Abels & Kemmner since 1998, working in the areas of “Restructuring/Turnaround/Reorganization” and “Supply Chain Optimization”

Picture of Prof. Dr. Andreas Kemmner

Prof. Dr. Andreas Kemmner

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