Turnaround situations

What constitutes a turnaround situation?

"The definition of a turnaround situation depends on which role player you ask."

Like beauty lies in the eye of the beholder, views on what constitutes a turnaround situation are coloured by who you ask.

As a troubled company’s situation deteriorates over time, more stakeholders and turnaround profession disciplines (and professionals who don’t have turnaround in mind at all) enter the arena.

Each party, often myopically, not only looks at the turnaround situation from the perspective of the managerial, financial and legal aspects associated with the particular stage of decline it is involved in, but also from the perspective of the rights and interests of the constituency it presents, and its own professional background and education.

For instance, managers, investors and board of directors are involved right from the start when early signs of decline becomes evident or when a company starts underperforming.

They often bring management consultants and turnaround practitioners on board to help with corporate renewal, business transformation and turnaround initiatives.

Banks and other lenders too enter the equation when a company’s situation has deteriorated to the point where their lending exposures become too high.

Lawyers, acting on behalf of creditors, are also drawn into the situation at this point in time.

Then, as insolvency occurs, insolvency practitioners, other lawyers and government business rescue legislators join the party too.

With so many possible different role player views, what then constitutes a turnaround situation?

Views on turnaround situations

Narrow view of a turnaround situation

"Facing imminent failure ..."

In narrow terms, a turnaround situation is a distressed company normally facing imminent failure due to a cash or solvency crisis.

Although they acknowledge the wider view of turnaround, turnaround gurus Slatter and Lovett provide a good description of the narrow view.

They state that turnaround situations are "firms whose financial performance indicates that the firm will fail in the foreseeable future unless short-term corrective action is taken."

The narrow view represents the classic turnaround view, often involving making use of business rescue legislation to save the distressed company from failure.

Wider view of a turnaround situation

"To turn around the trend of results from down to up ..."

Modern thinking, however, leans toward the need for turnaround before a distressed situation has developed.  

World-wide, the banking industry has for long influenced their troubled clients’ affairs through informal creditor workouts, which often involves turnaround action.

Furthermore, more demanding boards of directors, often prompted by shareholder activism, are increasingly placing pressure on management to improve results before the banks get concerned.

The classic view of a turnaround situation therefore needs to be widened.

Moreover, organisations with benevolent shareholders such as government institutions, or those that are subsidiaries of strong groups, will hardly fail even if in dire financial distress.

Yet, organisations in such conditions are in need of turnaround too.  Accordingly, there is the need for a wider view of a turnaround situation as a company that is underperforming or in distress.

A good example of the wider view is by another turnaround guru, Stanley J. Goodman, who states that a turnaround is "to produce a noticeable and durable improvement in performance, to turn around the trend of results from down to up, from not good enough to clearly better, from underachieving to acceptable, from losing to winning."

Broad view of a turnaround situation

"Restoration of corporate value ..."

The advent of the corporate renewal and business transformation philosophies added a new dimension to the scope of turnaround.

These philosophies, and the professional disciplines they spawned, help management revitalise and reinvent their companies in a changing business environment.

Typically, they help companies to proactively react to changes in industry drivers of a political, economic, social, technological, legal and environment (PESTLE) nature.

By timeously reacting to early warning signals of decline, they effectively represent pre-emptive turnaround action.

Moreover, by helping management to resolve underperformance due to past inaction by means of remedial business transformation / corporate renewal, these approaches enter the realm of turnaround when marginal underperformance has set in.

By extending the wider view, we can therefore adopt a broad view of a turnaround situation as a company that exhibits symptoms of decline, or which is underperforming or in distress.

A more elegant broad definition of a turnaround situation can be construed from the Turnaround Management Association statement that its members are a community of turnaround and corporate renewal professionals who strengthen the economy through the restoration of corporate value.

A turnaround situation can therefore be viewed as a company in need of restoration of corporate value.

This all-encompassing view covers all stages of corporate decline, whether exhibiting symptoms of decline, underperforming or in distress.

Note, however, that not all organisations in need of a turnaround are companies or even firms.   For instance, non-profit organisations, a government programme or school may be in need for a turnaround, not to restore corporate value, but to achieve certain results.   For these type organisations, a turnaround situation is probably best described in terms of the wider view as by Goodman above.

Turnaround situations during the different stages of financial distress are graphically illustrated in the two diagrams below.

Restoration of corporate value

View the restoration of corporate value at different levels of company health.

Turnaround situations flow chart

View the flow from proactive business transformation to remedial business transformation to turnaround.

Seriousness of a turnaround situation

If follows from the aforegoing that the later the stage of corporate decline, the lower the Z-Score and the more difficult a turnaround becomes.

The financial situation worsens and the ability to attract funding decreases.

Externally, customers stop buying and suppliers stop supplying.

Internally, management and staff leave, systems stop operating.

Costs increase because more role players enter the arena.

Creditors start controlling the agenda by virtue of the threat of invoking formal insolvency, and eventually formal insolvency processes eventually kick in, followed by liquidation if not viable.

Seriousness of a turnaround situation - 1

Type of turnaround situation

Degree of financial distress



Turnaround or remedial transformation of underperforming business


Management intact - focus on leadership alignment

Systems intact

Turnaround of a distressed company

Financial crisis

Management intact - possible leadership changes

Systems intact

Deep turnaround

Deep financial crisis

Good managers have left - new management

Broken systems

Seriousness of a turnaround situation - 1

Type of turnaround situation

Emergency management Stakeholder management Pace

Turnaround or remedial transformation of underperforming business

Create burning platform based on the need to stabilise end rectify decline

Internally directed at management and employees

More measured pace

Turnaround of a distressed company

Severe crisis stabilisation Also externally directed at investors, lenders, suppliers and customers Rapid, incisive action

Deep turnaround

We regard both business transformation and turnaround as dimensions of corporate renewal.

Our management consulting division, Corporate Renewal Solutions, focuses on business transformation of less serious situations, where we work with management.

Our turnaround management division, CRS Turnaround, focuses on turnaround management of distressed companies, where we work not only with management, but normally also with the companies' board and banks.

We prefer to be engaged when a client starts showing signs of failure.  Since there is no crisis to stabilise, drastic emergency management action can still be largely avoided

However, in practice, turnaround practitioners tend to be engaged only once a crisis has developed.  

Invariably, action is triggered by lenders or a board of directors, rather than by management.

Symptoms of failure provides more information about the profitability, liquidity, solvency, and overall business crisis situations for which our turnaround consulting services have been developed as appropriate solutions.

While no turnaround is easy, turnaround situations that have management and systems intact are easier to address. 

Deep turnarounds, where good managers have left and where systems are broken, present the most difficult challenge to turnaround practitioners.

Irrespective of the turnaround situation you face, see turnaround consulting for detailed information about how we may be of assistance to you.

Turnaround and the stage of corporate decline


Characteristic decline curve

Fitzgerald Associates employs a useful model describing three stages of decline:

Click on the thumbnail for an enlarged view of the stages of corporate decline diagram.


Characteristic decline curve


Click on the thumbnail for an enlarged view of the characteristic decline diagram.


Turnaround situations


Turnaround situation

Phase 1 - the Hidden Phase

Visible from the inside

Pre-emptive turnaround

Phase 2 Decline - the Subtle Phase

Visible from the outside

Business correction / Business transformation

Phase 2 Decline - the Overt Phase

Visible to all

Classic turnaround

Turnaround, creditors and the law

Turnaround and the Timeline of Financial Distress

Informal Turnaround Processes (outside of the legal framework provided by the Companies Act and Insolvency Act)

Statutory Processes

Chapter 6 of the Companies Act No. 71 of 2008

Insolvency Act

Emerging problems

Acute and worsening problems

In financial distress but economically viable

In financial distress and not economically viable

Management-led correction

Informal creditor workout

Business rescue



Turnaround in the absence of creditor pressure.

There is no creditor pressure since the financial situation is not yet critical.

Turnaround when the financial situation is already critical, but in the absence of creditor pressure.

This is due to support from benevolent shareholders. e.g. distressed government organisations, SOEs and companies with financial support from holding companies.

Turnaround given an informal agreement, between management and creditors to reduce indebtedness.

Creditors are normally banks and institutional lenders.

Management remains in charge, but the agenda is determined by the workout agreement.

Turnaround characterised by the temporary supervision of the management of the company, a temporary moratorium on the rights of claimants against the company, post-commencement finance, cram-down of dissenting creditors, and a business rescue plan.

Chapter 6 of the Companies Act no. 71 of 2008 replaces judicial management (Sections 427 - 440 of the Companies Act No. 61 of 1973) and its Section 311 Compromise with Creditors.

No turnaround - realisation of the distressed company's assets and the distribution of proceeds to its creditors.

Business rescue types


Business rescue plan including funding largely negotiated prior to commencement of business rescue proceedings.


No pre-negotiation

Management-led correction and informal creditor workout are informal processes occurring outside the legal framework provided by the new Companies Act and Insolvency Act.

In contrast, business rescue and liquidation are formal insolvency processes, court-driven and therefore relatively inflexible and expensive in comparison.

The more a turnaround situation deteriorates and move along the timeline of financial distress, the more management loses control of the agenda, the lower the turnaround success rate, and the higher the cost of addressing the turnaround situation. 

For more information, see the timeline of financial distress.

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At CRS Turnaround, we address any kind of turnaround situation, including the deep turnaround.