Prompted by the US subprime-mortgage meltdown and subsequent credit crunch, the 2008 financial crisis saw a record number of commercial bankruptcies and bank and brokerage-house failures. In the US, 136 public companies filed for bankruptcy protection and 64,318 businesses filed for bankruptcy according to insights published by law firm Jones Day in 2019. Private Equity companies did not fare much better with 49 leveraged buyout-backed bankruptcies reported by peHUB in 2009. Most affected where the retail, airline and automotive sectors as well as media properties, consumer products vendors and restaurants.
A total of 25 billion-dollar public companies filed for bankruptcy in 2008, including the two largest in US history to date: Washington Mutual Inc. and Lehman Brothers Holdings Inc.
Despite recent emergency measures being welcomed for entirely preventable corporate collapses (such as the suspension of the wrongful trading law by the UK government and the move by Germany to suspend the obligation to file for bankruptcy until 30 September this year) COVID-19 remains the latest stressor impacting the survival of businesses and the wider economy.
Particularly affected by enforced slashing of consumer demand are the airline, retail and restaurant industries. As growing numbers of companies come under financial stress, the fresh steps taken to protect against insolvency will not prevent every struggling business from going under.
Managing and executing insolvency and restructuring processes can be particularly complex. Intricate procedures and time sensitive deadlines can be difficult to meet, especially when managing hundreds of thousands of documents that require controlled disclosure to a broad range of entities and individuals such as creditors, trustees, lawyers, committees, banks and advisers. Already used for confidential business processes such as mergers and acquisitions and commercial real estate transactions, virtual data rooms (VDRs) are becoming increasingly popular as a means to manage and share critical information and streamline workflows.
Targeting due diligence
Due diligence is an essential yet underestimated part of both restructuring and insolvency procedures. The use of a data room can have a significant impact on both speed and effectiveness of dealings particularly with regards to data collection and analysis.
A highly functional and secure platform enabling organised access to documentation at any given time is particularly useful at the beginning of a corporate restructuring process in order to collect critical information and develop an appropriate restructuring program. Once determined, a VDR can be used to divest certain units of a business, in line with a business’s strategy.
Similarly, when it comes to insolvency, trustees or liquidators duty-bound to divest assets at the highest possible price can shorten timelines and limit market factors likely to disrupt a deal.
Accelerating and facilitating processes
Virtual data rooms can provide:
- Flexible access to documentation 24/7–you can identify relevant parties requiring disclosure to particular documentation and allow them access to data around the clock, wherever they might be operating.
- Proper indexing of data – information can be structured immediately making the overview and search of documents easier and the identification of potential gaps in records simpler.
- Auto allocation of documents– depending on the provider and their use of machine learning and AI, large volumes of incoming documents selected and uploaded by the user can automatically be analysed and sorted into the required index point with increasing accuracy over time.
- Ease of search – you can run a pre-selection of the documentation and assess a deal’s risks and opportunities with the advanced search and filter functionalities characteristic of certain providers such as Drooms whose Findings Manager feature is context-sensitive recognising words, synonyms and semantic patterns.
- Improved reporting– the analytics and reporting functions enable a better grasp of the project and provide much needed insight on who’s accessing what and when.
- A centralised Q&A – the ability to respond to and manage multiple lines of inquiry quickly can be critical to the success of a project. A built-in, fully self-operating Q&A function increases efficiency and keeps relevant stakeholders up to date.
- Fast setup and support – aside from the generous free prep phase that many providers offer with immediate and continued access to documents once it ends, full time dedicated project management is often also available around the clock in multiple languages. Services tend to include but are not limited to the collection, digitising and indexing of documents.
Limiting risks and reducing costs
Improved and faster access to data shouldn’t ever be to the detriment of security. In fact, VDRs tend to promote the integrity of data by limiting information leakage.
The viewing and access to documents for example can be controlled and limited, particularly useful when wishing to invite multiple third parties or buyers to the table without wanting to share who those parties inevitably are. Even after download, a dynamic, personalised watermark down to the single second provides further control. Advanced permission controls are also available and include editing where only additions are allowed and editing with approvals for content management.
Many VDR providers will have a set of security standards they follow, and some will demonstrate full compliance to strict data protection regulation such as GDPR. To further minimise wrongful processing, modification or loss of data its worth enlisting a virtual data room provider who has ISO-certified proprietary servers based in Europe. Such a focus doesn’t just reduce the risk of a data breach but also the legal danger of non-compliance.
To learn more about Drooms’ market leading data room solution Drooms TRANSACTION and how it can add value, click below.