I. Dilemma: Intertwined Crises of Debt, Business and Management

In early 2024, a small and medium-sized manufacturing enterprise founded in 2010 (hereinafter referred to as "Company Z") sent an urgent request for assistance to our firm. Specializing in precision component processing, this enterprise once provided supporting services for many well-known equipment manufacturers, with an annual output value exceeding 80 million yuan. However, in recent years, affected by multiple factors such as industry cycle fluctuations, rising raw material prices, and chaotic internal management, the enterprise has fallen into a severe crisis:

• Heavy Debt Burden: Involving more than 20 types of creditors including bank loans, supplier arrears, and private loans, the total debt exceeds 60 million yuan. Some debts have overdue, facing risks of multiple lawsuits and enforcement.
• Continuous Business Decline: The competitiveness of core products has declined, old customers have been lost seriously, new market development is weak, annual sales have dropped to less than 30 million yuan, and the company has suffered losses for two consecutive years.
• Almost Out-of-Control Management: The drawbacks of family-style management have become prominent, with arbitrary decision-making, unclear powers and responsibilities, high costs, and the successive resignation of core technical personnel.

What is more tricky is that the above three crises are intertwined - debt pressure has led to supplier supply cuts and production stagnation; business decline has exhausted cash flow, making it unable to repay debts; chaotic management has further exacerbated business decline and brain drain. Company Z has fallen into a vicious circle of "the longer it drags on, the worse it gets" and is on the verge of bankruptcy.

II. Our Firm's Intervention: Multi-Dimensional Due Diligence to Identify the Root Causes

In March 2024, after accepting the entrustment, the corporate business team of our firm immediately launched a comprehensive and in-depth due diligence. We are well aware that for the "multi-quagmire" predicament of Company Z, the traditional solution of "treating the head when the head aches and the foot when the foot hurts" is totally ineffective. Systematic diagnosis and comprehensive measures must be taken.

The team conducted an analysis from four dimensions:

The conclusion of due diligence is clear: Company Z is not "hopeless", but needs a comprehensive and systematic restructuring plan - which should not only resolve the debt crisis, but also reshape business competitiveness and reconstruct management mechanisms.

III. Comprehensive Restructuring Plan: Three-Dimensional Linkage of Debt, Business and Management

Based on the due diligence conclusion, our firm's team proposed a "three-dimensional linkage" restructuring strategy: release living space through debt restructuring, build a growth engine through business restructuring, and consolidate the operational foundation through management reconstruction. The three aspects are promoted simultaneously and support each other.

3.1 Debt Restructuring: Hierarchical Negotiation + Debt Replacement to Resolve Rigid Redemption Pressure

Debt is the most urgent crisis for Company Z. Our firm's team communicated with more than 20 creditors one by one and designed differentiated solutions according to different types of claims:

Hierarchical Debt Repayment Plan

• First Tier (Secured Claims): 3 banks and financial leasing companies involving 25 million yuan of debt. 40% will be repaid first with the proceeds from the disposal of equipment collateral, and the remaining 60% will be extended for 3 years, to be assumed and repaid in installments by the new company.
• Second Tier (Supplier Arrears): 15 suppliers involving 20 million yuan of debt. A "cash + order" settlement plan was reached through negotiations - 30% paid in cash immediately, and 70% converted into advance payments for future procurement orders, which not only eases cash pressure but also locks in subsequent cooperation.
• Third Tier (Private Loans): 2 individual creditors involving 15 million yuan of debt. A third-party asset management company was introduced to acquire the claims at a discount to achieve debt replacement, converting high-interest short-term debt into low-interest long-term debt.

Innovative Operation of Debt Replacement Our firm assisted in introducing a local asset management company to acquire 15 million yuan of private loan claims with 8 million yuan, and Company Z used the future disposal proceeds of one of its idle factory buildings as collateral. This move not only reduced the debt scale, but also converted high-cost short-term debt into low-cost long-term debt, greatly easing the cash flow pressure.

After two months of arduous negotiations, settlement agreements were finally reached with 18 creditors, and the claims of the remaining 2 were confirmed through judicial procedures, initially resolving the debt crisis.

3.2 Business Restructuring: Stripping Loss-Making Businesses + Introducing Strategic Partners to Reshape the Growth Engine

After the debt crisis was eased, business restructuring became the key. Our firm's team assisted Company Z in comprehensively sorting out its existing businesses:

Business Line Evaluation and Stripping

• Retained Business: Precision shaft processing business, which still has technical advantages and intention of cooperation with 3 leading customers, will be focused on with concentrated resources.
• Stripped Business: Structural part processing and non-standard customization business lines, with outdated equipment, serious losses and no market prospects, will be stripped through asset disposal, and the realized funds will be used for technological transformation of core businesses.

Introducing Strategic Partners Business focus requires external resource support. Our firm assisted Company Z in reaching a strategic cooperation with an upstream new material enterprise - the other party holds 15% equity of the new company in the form of technology investment, and at the same time promises to give priority to supplying raw materials and provide credit period support; Company Z opens its precision processing capacity to it, forming industrial chain synergy.

3.3 Management Reconstruction: De-Familization + System Establishment to Consolidate the Operational Foundation

"If the business is good but the management can't keep up, it will collapse sooner or later." This is the concept repeatedly emphasized by our firm's team. Management reconstruction is promoted simultaneously:

De-Familization Reform

• Original family members withdraw from operation and management positions, retaining only shareholder status
• Introduce professional managers to serve as general managers, responsible for daily operations in an all-round way
• Establish a board decision-making mechanism, with collective decision-making on major matters

Establishment of Incentive and Restraint Mechanisms

• Implement equity incentives for core management and technical personnel, reserve a 15% option pool linked to performance growth
• Establish a comprehensive budget management and cost accounting system, and review and correct deviations at monthly business analysis meetings

• Set up an internal audit position to strengthen supervision and checks and balances

IV. Restructuring Results: Turning Losses into Profits in Half a Year and Returning to the Growth Track

On July 6, 2024, Company Z's restructuring plan was fully implemented. Only half a year later, the results were remarkable:

• Financial Indicators: Achieved operating income of 32 million yuan and net profit of 3.8 million yuan, a significant improvement compared with the same period before restructuring (a loss of 5 million yuan)
• Business Progress: The precision shaft business has obtained additional orders from old customers, and at the same time developed two new customers in the new energy field, with order schedules extending to Q2 2025
• Debt Resolution: The performance of settlement agreements is normal, with no new overdue debts; the introduced asset management company has completed the first batch of debt replacement, and the debt structure has been optimized
• Team Stability: No core technical personnel have resigned, one sales director and one financial director have been newly recruited, and the professional level of the management team has been improved

At the year-end summary meeting, the chairman of Company Z sighed: "Half a year ago, we were considering bankruptcy liquidation, but now we can actually make profits. The professional comprehensive restructuring plan has made our ship, which was about to sink, set sail again."

V. Case Enlightenment: Complex Dilemmas Require Comprehensive Solutions

The successful restructuring of Company Z has once again verified our firm's professional strength in handling complex non-litigation businesses of small and medium-sized enterprises. Its core enlightenment lies in:

1. Systematic Dilemma Identification: Debt, business and management problems are often causal to each other, and a single breakthrough is difficult to work, so systematic diagnosis is necessary
2. Linked Scheme Design: Debt restructuring buys time for business restructuring, business restructuring provides space for management reconstruction, and management reconstruction guarantees debt performance. Three-dimensional linkage forms a positive cycle
3. Refined Implementation: Negotiate with more than 20 creditors one by one, accurately evaluate each business line, and implement management mechanisms to each position. Details determine success or failure

At present, our firm has systematically summarized the case experience of Company Z to form the "Guidelines for the Comprehensive Restructuring of Small and Medium-Sized Enterprises", and continues to provide full-life-cycle legal services for distressed enterprises, helping more enterprises get out of the mire and regain new life.