Headlined as a modern approach to business insolvency (a.k.a. Chapter 11 plus), the long-awaited EU proposal on business restructuring is every turnaround manager’s dream come true; an early Christmas present and wishes fulfilled beyond expectation. Having spent over 15 years banging on about consensual pre-insolvency restructuring saving enterprise value for creditors and jobs for employees I can only say how delighted I am. Congratulations to all those enlightened professionals and professional organisations for their commitment to the cause.

It still has to pass through the European parliament, emerge as a Directive mandatory in all member states and then get adopted in each country. It could be two years before it becomes effective, too late for Brexit Britain. The UK has its own draft proposals battling for acceptance against secured creditor and IP headwinds. Even in its current form this proposal will be left behind by the EU Directive. Once it was German and Spanish professionals moaning about forum shopping to London and Schemes of Arrangement. Now the boot could be on the other foot. Wake up time, and time for British pragmatism in accepting the inevitable. Consensual restructuring is good for “UK Plc”.

 

Alan Tilley – Managing Partner & Chairman, BM&T
5th December 2016

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RBS has set aside a £400 million fund for a complaints scheme to return complex and opaque fees wrongfully charged to 4,000 of the 12,000 companies, many of which were forced into insolvency, that were handled by the bank’s discredited Global Restructuring Group (GRG) between 2008 and 2013. This follows the publishing of preliminary findings of an FCA investigation which astonishingly found that two thirds of these customers were potentially viable businesses. Compensation for fees will be small consolation to those owners who lost their businesses because of GRG’s actions. Any money will go the administrators and liquidators of the businesses and not the owners.

So, what of the other businesses not in the 4,000? Many owners are still mounting a class action against the bank? Well, they will just have to plough on. Maybe the FCA report will never see the light of day and this is just a pre-emptive move to cloud the issue. Let’s hope the Government is not fooled by this. These business owners should be compensated and the banks should bear the costs of their misdeeds “pour encourager les autres”.

Destroying viable businesses is no way to run an economy. Proposals by the Insolvency Service to introduce a pre-insolvency moratorium period are under consideration. The sooner these are enshrined in Insolvency Law the sooner the balance between debtor and creditor in a business that can be saved can be achieved. This quite frankly is good for the banks and good for the country. Maybe some good will come out of the GRG saga after all.

 

Alan Tilley – Managing Partner & Chairman, BM&T
9th November 2016

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Information leaked this week sheds more light on the murky RBS GRG story. Internal RBS documents appear to have encouraged the provocation of healthy businesses into default condition from where extortionate fees were charged, external independent property valuations overridden by internal valuations and properties sold into an RBS property company to be sold later at a profit.

An internally commissioned report from RBS’s external legal advisors did not remark on this and RBS deny systematic wrong doing. A report commissioned by the then minister responsible, Vince Cable, has still not emerged from the FCA and is now two years’ overdue. Obfuscation, procrastination and conspiracy theories abound. In due course the facts will come out and it is to be hoped those businesses and their owners who have suffered from the excesses of creditor power will be properly compensated.

But what can we really learn? That some rogue bankers playing on a far from level playing field will take undue advantage? No. That was ever the case and forever will be. The real issue is that in the UK, creditor interests are tipped too far in their favour to the detriment of value preservation and business survival. Had the moratorium contained in the Insolvency Service proposal currently under consideration for introduction in 2017 been in force at the time, much of GRG’s excesses could have been avoided and viable businesses would have survived.

So whilst we would urge the FCA to publish, and GRG be damned if that is what the report will say, we also strongly urge parliament to expedite the introduction of the proposed pre-insolvency moratorium.  This will achieve a better balance between debtor and creditor rights in the interests of enterprise value preservation and the avoidance of heavy handed creditor intervention.

Alan Tilley – Managing Partner & Chairman, BM&T
11th October 2016

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At the end of May 2016 the UK Government’s Insolvency Service published a proposal for innovative new legislation to improve the UK’s business rescue culture. A six-week consultation period ended on 6th July. The full consultation document can be found here: Insolvency Service Proposal May 2016

There are essentially four major strands to the proposal:

  1. A three-month moratorium for businesses facing financial difficulties where hostile creditors are prevented from take any enforcement action. The company would have to satisfy certain conditions to be able to enter such a moratorium and would need to appoint a suitably qualified Supervisor to ensure it meets and continues to meet those conditions.
  2. The ability to nominate suppliers as “essential” so that they are prevented from terminating those contracts or demanding ransom payments.
  3. The ability to cram down hostile creditor classes against their will, subject to certain protections. This would prevent creditor classes who are “out of the money” (i.e. who would get nothing in an insolvency) from holding a restructuring to ransom. This is becoming an increasing issue in modern multi-tier complex creditor structures.
  4. The possibility of allowing lending to a company in a restructuring situation with additional priority. So called super-priority.

This is without a doubt the most significant proposed legislative change to the legislation surrounding insolvency in over a decade and would bring many of the features of the US Chapter 11 process to the UK. Significantly, it would not bring the costs of the US process as each creditor class would not be able to appoint advisors at the expense of the company. The government is actually trying to make this a widely available lower cost approach than current insolvency processes with the intention of making it available to smaller companies and to encourage directors to seek help earlier than they do now.

BM&T is very supportive of this proposal and a copy of our response to the consultation is available on our Press and Publications page. In particular, we like the proposal that Supervisors do not have to be an Insolvency Practitioners (IP) and that IP’s acting as Supervisors will not be able to take any subsequent Insolvency Appointment. This will allow the many highly experienced and qualified turnaround professionals to be involved in what they do best and takes away the inherent conflict of interest in IP’s advising companies pre-insolvency and then taking and insolvency appointment. The ability to cram down creditor classes will also be of great help where appropriate.

The Insolvency Service will respond to the consultation exercise in October 2016 and we await their views. This proposal has the potential to bring a true rescue culture to the UK which could reduce the number of viable businesses that currently find themselves pushed into value destructive insolvency. The devil is always in the detail with new legislation but we truly hope this ground breaking proposal make its way into law in the not too distant future.

David Bryan – Managing Partner & CEO, BM&T
11th July 2016

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An extraordinary coincidence of timing at the International Restructuring Conference in London today. Global Turnaround Editor, John Willcock’s informative market update featured “London’s Scheme Industry keeps on rolling” as a keynote topic. He pointed out the recent COMI shift objections in the Codere and Indah Kiat cases to what the Court described in Codere as “… an extreme form of forum shopping” and “grabbing someone else’s debt just to get rid of it”. But just two days before reports had emerged that a German Court in ruling on Bond holder claims written under Austrian law, whilst rejecting a German insolvency filing had stated that Scholtz’s COMI was in Germany; this whilst Scholtz’s advisors have been active in migrating certain management functions to UK to establish a UK COMI and sufficient connection to proceed with an English Scheme of Arrangement to restructure Scholtz’s debt.

Whilst scrutiny of the detail of the judgment is awaited it is interesting that apparently “contrived” aggressive forum shopping is being seriously questioned by Courts in both England and Germany. In a further conference session on developments from the European Union the concept of “COMI at the transaction date” was mentioned. Maybe this will appear in a forthcoming Directive and further undermine post distress COMI migration. This would certainly be too late to affect the Scholtz restructuring but what is evident is that Courts are alert to spurious forms of forum shopping and are taking a more demanding look at the underlying reality.

In the short term the advisors of Scholtz may have to go back to the drawing board unless they can convince an English Court judge to take a contrary view to his German counterpart. Now that would be interesting!!

Alan Tilley – Managing Partner and Chairman, BM&T

24th April 2016

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For over 4 years the talk has been about the €1 trillion and rising of European NPL’s and the opportunity for the restructuring profession, but painfully little progress has been made, particularly in the corporate distressed loan sector. Portfolio offerings have been short on the depth of information buyers need to commit their money and in many cases the banks’ ability to sell at realistic rates is hampered by inadequate provisions. Such is the gap between provision and reality that one really has to wonder that in some cases it may not be just the bank that is under water but the sovereign too. How does the Eurozone banking system resolve this conundrum without tipping the whole edifice over?

Well clearly this is not just a buy sell transaction exercise, nor a “delay and pray exercise”. The bid offer spread gap is too great and time will not heal bad management performance. So some lateral thought is going to be required. And if it can’t be by increasing the provisions it must be by increasing the underlying value of the loans. Corporate performance enhancement is not a quality one associates with banks so it will be left to the service platforms buying the debt to add that value. This is an opportunity for a marriage of Funds’ cash with Turnaround professional expertise. There has been no lack of enthusiasm from the Turnaround Profession’s side. So perhaps a wake-up call to the Funds is needed that banging on about unrealistic price levels is not going to get the NPL’s released. They need to move from the buy/sell mind set to actually working for a living and start adding value.

Alan Tilley – Managing Partner and Chairman, BM&T

21st March 2016

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Interesting document from Insol Europe Turnaround Wing to its members on guidelines for Restructuring Professionals in consensual restructurings. It introduces the concept of Restructuring and Turnaround Professionals (RTP); restructuring being defined as balance sheet restructuring and turnaround being operational turnaround.

Now isn’t that putting the cart before the horse? A trained turnaround professional stabilizes the cash flow first, changes the operations second to enhance value and only then negotiates a financial restructuring achieving the best results for the client from a more credible business plan.

The term Chief Restructuring Officer (CRO) emanates from the USA and Chapter 11 where the professional was both skilled in operational and financial restructuring managing the submission of a Plan of Reorganisation and implementing it ahead of negotiating the financial terms and the subsequent exit. It was later adopted in Europe but something has been lost in the translation mid Atlantic where a CRO is now seen as a Balance Sheet restructurer only and not an all-rounder with management skills. Hence understandable the Insol Europe misconception and the introduction of RTP as its members do not have operational management backgrounds. The CRO in Europe should be the CTRO or Chief Turnaround and Restructuring Officer.

Now don’t get me wrong. I welcome the guideline and its recognition of consensual restructuring as preserving more value than insolvency and it is a step in the right direction on promoting ethics and professional standards to consensual restructuring and in recognizing a primary duty to the client and not the secured creditor who may have been the referral source. But Insol Europe being an Insolvency organisation is coming at this from the wrong angle. CTRO and TRP (Turnaround and Restructuring Professional) puts the horse before the cart where it should be.

But why bother? There already exists a Certified Turnaround Professional qualification for consensual restructuring in ECTP (European Certified Turnaround Professional ) where professionals have to demonstrate proficiency through examination and experience in all three skillsets of turnaround; finance, legal principles and management and ethics. Is this just another defensive move by the Insolvency Profession just like the one that corrupted the term Chief Restructuring Officer?

 

Alan Tilley – Principal, BM&T

28th August 2015

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Latest news is that the FCA review will not now be published until the end of 2015. This is the third delay and I wouldn’t be surprised if it drags on into 2016 or beyond.

No reasons have been given but I suspect this is the process referred to as “Maxwellisation”. This is the process whereby anyone subject to criticism in the report has the right to  see the criticism and comment in response. Those comments then have to be considered by the reports authors. It is the reason for the almost laughable delay in the Chilcot report and numerous others and has become the weapon of choice for lawyers wanting to delay and water down criticism of their client.

Two other interesting facts mentioned by Berg, a law firm acting on behalf of many small businesses claiming against RBS. Firstly, this delay may mean the report isn’t published until after the time limit for claims to be filed. Secondly, Berg note that, “RBS has appointed external advisors to launch an investigation into the treatment of small business customers. RBS have not confirmed who has been appointed. It is likely that if such a report is being carried out on behalf of RBS, the Bank will want to use the FCA’s further delay to its advantage by publishing its report first to demonstrate a proactive approach, despite its blanket denials to date and to minimise the impact of the FCA report”

I guess most of us will just have to sit and wait for the wheels of Maxwellisation to grind slowly forward before we get the chance to find out what the investigation has come up with.

 

David Bryan – Principal, BM&T

27th July 2015

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Today’s Accountancy Age highlights the gloom in the UK insolvency market as corporate and personnel insolvencies continue to decline. “Gormenghastian gloom pervades insolvency market”, its headline screams.  “There is a greater focus on value for money” comments one IP. Another quotes “it’s all down to pragmatism-in many cases creditors are choosing to get something back than nothing”.

Well blow me down! The market is finally waking up to the fact that a deal done consensually will pay back more than insolvency where the dreaded Insolvency word knocks goodwill and asset values for six, and IP’s fees take a further slice of what’s left. Add to that the headlines of over aggressive recovery by secured creditor banks, still in the government’s firing line, and it is not difficult to see the why attitudes are changing.

In fact the market is moving quicker than the law and the law is moving quicker on the continent than in UK. In France, Italy and Spain pre insolvency rescue processes have been introduced and the EU Regulation now encourages member states to introduce similar processes. The UK it appears is nowhere near following that advice. For a country that copper plates almost every directive that emanates from Brussels there is a strange reluctance to adopt one of its more sensible proposals.

Fortunately more savvy professionals have cottoned on to the benefits of Consensual Creditors Compositions, persuading often reluctant creditors with the merits of patience and forbearance whilst a practical turnaround plan is implemented. This requires a balance of skills from the financial skills to stabilise cash flows, refocus the business and business plan and manage stakeholder expectations through negotiation whilst implementing the plan improvements. IP’s who are underweight in management expertise and overweight in insolvency processes are not always best equipped for the task. It can be too easy when faced with a debtor deep in the zone of insolvency to take the high fee low risk option at the expense of jobs and unsecured creditors.

The fact is the market is changing and the professionals that operate in it are changing too.

 

Alan Tilley – Principal, BM&T

23rd July 2015

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