WDPG 4.1 Anticipating reactions

In WDPG 3.6 (Impact assessment: who will be affected by the wind-down?) we explain how important it is for firms to assess the impact of a wind-down on customers, markets and other parties. In this section, we highlight the importance of anticipating the reactions of those parties.

Employees may want to leave as soon as possible to secure new roles. Firms may therefore need to consider how to ensure they can retain the key employees needed to carry out a wind-down.

If a firm is winding-down, especially under challenging market conditions, there is a risk that counterparties or other clients may simply default. This may have consequences on anticipated revenues and costs, and the duration and/or impact of the wind-down.

When a firm announces its wind-down decision, this may affect its reputation and/or credit rating. Changes in these factors may cause concerns for creditors, landlords and other suppliers about the firm’s ability to meet any outstanding liabilities and may trigger reactions such as margin calls or demands for full and final payment. It is therefore crucial that the firm communicates with these parties, and ensures there is sufficient liquidity to meet any liabilities when they fall due. This is a prime example of the importance of making a timely decision to wind down.