ACCA AFM students will be know that corporate reconstructions are a big ( & challenging) part of the syllabus. It can be tested in many ways.
What we have not seen for a while is the classic “Liquidate vs Reconstruct” question. Today, you have a case study to consider.
McColls , the UK based “neighbourhood retailer” are in financial difficulties. They employ of 16,000 people and have over 1400 stores.
This is in complete contrast to what occurred last year. They raised £30m from their shareholders to invest in their convenience stores.
So, what points to liquidate ? The fall in footfall post COVID and the high level debt. Come on ACCA AFM, you know the calculations you have to do here. Sell the assets at NRV & distribute the funds in the correct legal order.
But, they could reconstruct. Morrisons, one of the UK’s biggest supermarket chains, may strike a deal with McColl’s lenders and also inject capital.
This smells of equity for debt swap. But, what will be the future FCFCo & value of the entity.
Take a look at the past question “Doric” (I have an exam timed answer – video, excel & PDF) to see the exam approach.