ON THE ESCAPE OF FINANCIAL DISTRESS SITUATION: A REVIEW

Abstract

Background: Financial distress has been an interesting topic to discuss in the last few decades. Many research was aimed to test the relationship of company’s profitability and financial distress. Various variables including financial and non-financial variables as well as macroeconomic and microeconomic variables are used to predict financial distress. Various methods have also been applied to obtain financial distress prediction results with different levels of accuracy. However, directions on how to solve financial distress are still rarely discussed. Here, we bring discussion about financial distress resolution in the form of a light literature review.

Methods: This research is a qualitative-based study using a literature review approach which is developed to summarize and synthesize financial distress resolutions.

Results: Every country has their own procedures to solve financial distress. Whatever procedures that distressed companies take to cure the situation, it depends on how satisfactory the performance has been achieved, shown by the bankruptcy regime in facilitating the remedy process as expected in general. It also depends on how suitable the procedure is with the companies’ conditions. Specifically, the likelihood of successful implementation of certain financial distress remedial efforts is determined both by the company as a debtor and the lenders as creditors.

Conclusion: Before companies decide to take on debt, they must first ensure that they have good cash flow and they are able to project the payment of interest and principal debt on time