The Alvarez & Marsal Distress Alert (ADA) assesses the performance and balance sheet robustness of European businesses, aiming to identify those that are in financial distress or may soon be heading in that direction.
The ADA of July 2024 concludes that with one in ten corporates now in distress, the Benelux region is the most distressed market covered in the ADA. Benelux also has the highest proportion of firms lacking balance sheet robustness across the countries measured, nearly 35%, up from around 32% a year before.
The balance sheets of Benelux corporates were adversely impacted by the lingering effects of high inflation and supply chain disruptions of 2022, as companies sold their expensive inventories at lower prices last year. Additionally, firms' finances were strained by rising debt servicing costs and the first repayments of Covid-related tax deferrals.
Tax Optimisation
Tax optimisation is key for Dutch corporates in distress. Important considerations include:
- Tax impact of debt restructuring: Tax costs arising from modifications to the debt structure should be mitigated. For example, we currently see a lot of issues in the Netherlands around the waiving of debt in cases where there are carry-forward losses. In certain cases, these can be mitigated through specific structuring.
- Liquidity optimisation: E.g. utilisation of tax attributes for tax loss carry and interest carryforward (specifically during M&A), additional tax depreciation on fixed assets (FY23) and self-developed software, as well as VAT recovery and refunds in case of bad debt.
- Cash optimisation: Through employee benefits and payroll compliance.
- Risk management: Monitoring tax compliance and payments to mitigate liability issues.
Originally published 25 July 2024.
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