Imaginative Strategies for Restructuring and Turnaround Professionals post Covid-19

Posted: 09 Jun, 2020

In our latest TMA meeting we had a panel of speakers discuss the Corporate Insolvency and Governance Bill and how the measures it introduces can be utilised by restructuring and turnaround professionals to help companies in the wake Covid-19.

The meeting was well attended by over 160 longstanding and new TMA members who we thank for joining us. You can listen to the full recording here.

TMA UK Director, Adrian Doble, organised the meeting and curated our panel of speakers which included a range of experts across the restructuring and turnaround profession.

Our speakers:

Adam Plainer – Head of Restructuring, Weil Gotshal & Manges
Carl Jackson – Founder and Managing Partner, Quantuma
Federica Pietrogrande – Managing Director, Gordon Brothers
Tony Groom – Chief Executive, K2 Business Partners
Howard Morris – Head of Business Restructuring & Insolvency, Morrison & Foerster

Adam chaired the meeting and opened the discussion with an overview of the Bill which makes several significant changes to the UK’s corporate and insolvency framework including the introduction of a new moratorium, a new restructuring plan, a change to supplier and service contracts, the temporary suspension of wrongful trading and temporary prohibition of winding up petitions.

Much of the discussion focussed on the new moratorium which our speakers welcomed but also pointed out the need to tread carefully.

The Moratorium from a Lawyer’s Perspective

Speaking as a lawyer, Howard, pointed out that the moratorium represents a huge departure from the UK’s current rescue regime where there has been little incentive for directors to look for statutory help in achieving a rescue because every procedure entails them losing control. Now, this moratorium allows the incumbent management to remain in office, albeit with the supervision of a monitor, which he’s optimistic will help to promote rescue culture.

So, while Howard welcomed the tool, he did share some concerns. First, that the initial period of 20 days is too short to achieve a rescue unless a plan has been in the works beforehand. Second, he’s concerned about how companies will fund themselves during a moratorium when all debts incurred during or which are due during must be paid in full. And third, that in order to take an appointment, a monitor must be confident that the company will survive as a going concern which somewhat contradicts the premise in which it goes into the proceeding – that it is already, or is going to become, insolvent.

The Moratorium from an Insolvency Practitioner’s Perspective

As a licenced insolvency practitioner, and therefore eligible to be appointed as a monitor, Carl then said that he welcomes the measures introduced in the Bill and thinks the insolvency profession needs to embrace the moratorium. However he also warned that  “the devil is in the detail” and agreed with Howard that there are significant risks attached to the role of monitor and that it will be a challenge to ascertain whether the company has a good chance of surviving as a going concern before taking an appointment.

The Moratorium from a Turnaround Practitioner’s Perspective

As a turnaround practitioner, Tony suggested that this problem could be overcome if those in the restructuring and turnaround profession work together. While the Bill states that only a licensed insolvency practitioner can perform the role of monitor, Tony thinks that turnaround practitioners are ideally suited to be the “eyes and ears” of the IP in the company and can do much of the preparatory work that’s required before a monitor accepts an appointment.

The opportunity, Tony said, is for turnaround and insolvency professionals to spread the message that they’re in the business of saving companies rather than closing them down thereby overcoming the barrier that, historically, has prevented many directors from seeking early advice.

The Moratorium from a Business Advisor’s Perspective

Federica then expressed her concern that the moratorium will introduce uncertainty in relation to enforcement. She said that we will need to watch closely how the courts will interpret and implement the moratorium and that while it has been compared to Chapter 11 in the US, we need to be mindful that the US courts are very different from the UK courts. Quite aside from the fact that each country has very different legal frameworks, US judges tend to have plenty of help from professionals, accountants and lawyers, to help them make well informed decisions in a short time frame - a luxury that most UK courts don’t have.

Discussion of Other Measures

Discussion then moved on to the change to supplier and service contracts which Howard, Carl and Tony all welcomed but agreed that it will have little effect on SMEs who just simply won’t deliver goods and will use a variety of excuses not to. Howard did however point out that it may be useful to help with the supply of software and other intangible assets which are crucial to the continuation of business operations and that it will give more leverage to debtors to lean on suppliers to support them during its insolvency period.

Speaking about the new restructuring plan, Federica expressed her optimism that it will be a very powerful tool in the UK restructuring framework and said that she thinks it’s a “gamechanger” in that it allows you to control a small group of dissenting creditors which wasn’t previously possible. She also thinks that some points need to be specified, principally, what constitutes a class? Howard, too, said he was interested to see how the cross-class cram down mechanism will be used in practice and suspects that it’s mere existence will encourage more deals to be made.

Overall, the speakers welcomed the measures introduced by the Bill and that there is a lot that restructuring and turnaround professionals can do with them to help struggling companies in the coming months and years.

Thank you to all our speakers and everyone who joined the meeting. Our next event will be Part 2 of our webinar series with Colliers International which will take place on 17th June. Details of how to join will be released soon.