This article is written about a ‘real' business with ‘real' people issues. It is not intended to be ‘an answer all' article however to provoke some thoughts in the reader that there are possibilities aside from the insolvency professionals.

By way of background this business had no idea that they were about to trade insolvently or that bankruptcy was an impending consequence of poor people mismanagement and inattention to detail.

We look at the human resource consequences. While there were financial, sales, marketing and other imperatives these are not addressed here although we did with the business.

Definitions

• Bankruptcy is the legal process in which a person or business declares inability to pay debts. Any available assets are sold and the proceeds are distributed to creditors by a trustee in bankruptcy usually a specialist accountancy practice.
• The signs of Insolvency and Bankruptcy
• There are many sign that may point to a business trading insolvently or about to go bankrupt knowingly or unknowingly.

These signs can include:

Declining employee moral with employees picking up that all is not well in your business; overwork, increased management meetings, veiled threats and mutterings, threats, resignations, firings and the list goes on;

An increase in rumour mill traffic (the grapevine effect);

For no apparent reason or communication management begins to make unreasonable demands on employees and starts to engage in harassment and unreasonable behaviour;

The business cannot pay its invoices and sometimes employee wages are late, you begin to receive increased telephone calls requesting payment however management make vague promises;

The business financier calls to see management;

You begin to receive threatening creditor communication;

You (the employee) suspect the worst and one day you are called to a meeting and told the company has gone into voluntary or forced liquidation (bankruptcy) and has ceased to trade and asked to leave your employment.
 

Case Study – The ‘Business' - An Overview
We assisted a well known business that had very high brand awareness and a reputation for being at the forefront of its industries services and technology. This business was part of a global business that had products and services.

The dynamics of the business were not simple and included:

• 32 sites - city and remote areas thousands of kilometers apart;
• A business weakened by internecine rivalry, a lack of communication and trust between sites with a refusal to share knowledge or help;
• A culture of fear and disempowerment,
• A lack of trust in management that seemed justified;
• A lack of essential equipment and skills to perform their duties;
• A background that included; five months previously senior European management had dismissed local managers and had not replaced them leaving the business leaderless at the ‘coal face';
• A very high employee turnover and a loss of corporate skills and history which had never been documented;
• Financial records were found to be incorrect with a number of clients not invoiced and other clients invoiced more than once resulting in an understatement of company debt and accounts payable running in the majority 180 days plus;
• Ethnic rivalry - employees from different nationalities wood not work cooperatively together and displaying open hostility towards each other;
• The stock (share) value of the company was zero dollars in real terms. 

Finding the Solution

Finding a solution to these many problems was not going to be found in a packaged solution or come in a box

We undertook travel and urgent discussions with employees visiting their locations and interviewing them listening to their concerns in addition to interviewing key employees on a one to one basis.

We sought to unearth employees concerns and finding the common causes of concern. As time was of the essence we were required to address employee concerns quickly while demonstrating management commitment by conduct.

The Results of the Employee Fact Finding Mission

We discovered that employees felt abandoned and had no faith in management. Where employees had confided in management and received assurances their grievances would be address this had not happened: all talk and NO action.

We found that employees where genuinely under-resourced with outdated equipment and in some cases no equipment hindering profit generation and resulting in increased customer frustration.

Salaries and wages had not received any pay reviews for a number of years resulting in employees sabotaging the business by refusing to supply information to each other or the European Head Office and refusing to supply documentation that was required to invoice clients.

We uncovered many other issues that could be quickly resolved and some that would take much more work.

Financial pressures and employee sabotage finally forced management to take drastic action.

How we assisted the Company back from the brink of Bankruptcy

Addressing employee concerns and grievances through Human Resource Interventions became a key to the success of this businesses ability to survive and thrive once again.

Every employee had his or her grievances managed and solved quickly and an apology given where appropriate. A review of employee remuneration was conducted with a written promise that once the company's financial position improved they would be given a further review based on productivity and other key performance indicators that had been agreed to.

A timeline was given and approved for update and installation of new equipment. The business began a weekly communications newsletter sharing with each site and employee milestones, good news and what was happening as well as offering employees an opportunity to submit an article for inclusion.

Financiers had placed intense pressure on the company with veiled threats ‘to pull the pin' (not support the company) and require repayment of the debt immediately. Negotiations were undertaken with the financier with a solid plan for change and retiring the debt. This included information on what had been put in place to increase productivity and how this would be managed and how this would lead to increased profits.

Financiers approved an extension of the debt for 6 months only.

Changes in Head Office included

The business employed a General Manager and Accountant with excellent people skills and human resource experience and knowledge. Next the business undertook to uncover the ‘real' financial position of the company by having errors investigated and corrected, ensuring that people who owed the company money (debtors) were contacted and payments received within business terms.

The business completed a skills matrix of all human resources resulting in employment of additional practitioners and a SWOT analysis in addition to promoting existing employees to management where there was a need. We appointed the most experienced employee to document company procedures; operational, technical, financial and other documentation requirements.

Changes at Sites included

The business engaged all employees at sites as to their site specific concerns and subsequently authorised training where training was required for all employees over a period of time as finances allowed.

Obsolete assets and equipment were retired and new equipment was purchased as finance allowed. The issue of cultural sensitivities was addressed honestly and recommendation made on what could be done.

Employees longer term goals were documented. The business ensured that employees who had not taken holidays in years went on leave and had adequate rest. We undertook a review of revenue and costs to see how the company could minimise costs and maximise revenue (income) including employees ideas which did result in a large increase in revenue. The marketing and sales strategy that we implemented went against normal conventional advice and strategies however it immediately had the impact of dramatically increasing revenue.

As a result senior Asian and European management began to notice this turn around and employees were commended for the results.

Organisational Wide Changes 
Many organisational changes were made however we do not cover them in this article.

Skills required optimizing your human resources when dealing the potential of bankruptcy (from a human resource perspective) included:

• Listening skills.
• Ensure you understand the dynamics of the people you are working with and not take someone else's word for them.
• Include and work with your financial people and take time to learn how to read a basic profit and loss and balance sheet if you are a human resources practitioner. Show interest and ask questions.
• Include your key employees in everything you do to obtain buy-in.
• Explain to your employees your financial dilemmas and keep them updated – be honest.
• Take advice from the ‘right' person – someone who has experience.
• Prepare a skills matrix so that you know the hidden potential latent in your organisation.
• If you need to make people redundant for operational purposes manage the process compassionately, do not procrastinate and be upfront with all employees if there may be further redundancies.
• Keep people updated and thanked for their efforts.
• Know your people. Many business owners spend more time and money on their motor vehicle than developing their most valuable assets: people.
• Learn to delegate to proven results oriented people and not those who work long hours.
• Remember working long hours does not mean productivity and may indicate a deeper issue of wanting to be seen. 

A Word of Encouragement

One of the key factors in having the possibility to trade a business out of impending insolvency or bankruptcy is communication.

It is not an easy task and requires much patience, wisdom and business experience. It cannot be learnt in a laboratory or by getting an MBA.

It often takes a gut feel for the business and softer sills such as employee relations and human resource management. These softer skills are often despised or neglected but I have found them paramount in all spheres of corporate and business life requiring difficult situations.

The application of sheer accounting will not solve it (I am also a qualified accountant and once practiced accounting so can confidently assert this point).

You must communicate effectively and swiftly before momentum is lost.

You can be successful but you will be beset initially with resistance to change, employee sabotage (until they see you are genuine), interference by those who do not want you to be successful, you will face scorn by those pretenders in the business community who come to you with packaged solutions and whose interest it is to flog you packaged, and in my opinion, useless products and services.

It can be done and it's up to you.

This article does not do justice to the price you and many other people must pay to regain ground; it's not for the faint hearted. Simply we/I encourage you to believe and have the conviction to do what you believe.

The company today thrives has its share price increased and continues to grow as a market leader.

Having now been involved in this process at least 3 times the writer can attest to this truthfully.

YOU can optimise your employees to keep a business from potential bankruptcy!
 
Further Information
Philip Lye is Director of Biz Momentum Pty Ltd. He works with small to medium businesses to help them cut through the maze of people matters. Clients get specific actionable strategies to protect their business interests. For more information on Philip, visit www.biz-momentum.com.

Insolvency refers to a business unable to pay its creditors. A business is solvent if and only if, it is able to pay all its debts, as and when they become due and payable.