What is it with RBS that they are so keen to hide in the GRG saga which unscrupulously damaged so many viable businesses?

Today the Times reports that The Financial Conduct Authority continues to resist calls from MP’s and affected business owners to disclose the full results into its review of the scandal-hit Global Restructuring Group. It appears that the FCA when commissioning the report told the reviewers to prepare it on the basis that it could be made public. Now the FCA claim that such reports are not intended for publication despite requests from the chair of the Treasury Select Committee to publish it. RBS, having misled that committee before seems to be obfuscating by so called “Maxwellisation”. Now it appears that the long grass is the FCA’s preferred destination.

Why commission an independent and objective report if embarrassing facts will be hidden from the MP’s, public and the affected parties? Who are the FCA trying to protect? Surely RBS cannot do more damage to its tarnished reputation. What does matter is the who, the why and the how. Who because if they have wronged they need to answer to the law. Why because the smoke goes beyond just GRG and its employees to the ultimate decision makers who shouldn’t escape reprimand. And how because there is something very wrong with the UK bankruptcy process if it facilitates such blatant abuse of creditor rights.

Vested interest is at play here. That is not what the public want nor deserve. The truth should out and the culprits named and shamed. The lessons exposed need to be actioned against. Laws need changing to better balance creditor and debtor rights in distress and protect the entrepreneurial process.

For the benefit of UK business stop the procrastination; publish and let the wrongdoers be damned!!

 

Alan Tilley – Chairman, BM&T
3rd October 2017

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Half year 2017 statistics from UK and USA on insolvencies and Chapter 11’s show a continuing downward trend from an already low base in these countries. What activity there is focuses on the usual suspects; oil and gas, shipping and retail, but the absence of corporate restructuring in formal process in services, IT and general business sectors points to something deeper than the economy. Trends in the restructuring profession and the move away from insolvency into growth in turnaround and solvent restructuring practices is proof if it is needed that change to legal frameworks to encourage consensual restructuring is working. Change is also happening in Germany where insolvency specialists, mainly lawyers by training, are migrating back into corporate law. Further change in German insolvency law is awaited to conform to the recent EU Business Insolvency Directive which requires member states to introduce a consensual restructuring regime. Expect this to happen after the September national elections. German insolvencies will to continue to fall.

Evidence may be anecdotal as there are no statistics recording consensual restructurings. Also, there is no bright line at which a debt renegotiation becomes a distressed consensual restructuring. It is difficult to see that there will be ever be an accurate number. But as banks redress their balance sheets, both political and commercial pressures are moving them to seek change “under the radar” and away from headline grabbing insolvency. It takes time to change an ingrained process where at the first sign of distress a workout banker would pick up the phone to an insolvency firm but progressively banks are getting more accustomed to avoiding the value destructive “i word”. But, redressing balance sheets only is not a long-term solution for a non-performing company. Saving companies and preserving stakeholder value needs attention to cash flow, profit and loss accounts and operations. Experienced management guidance if not management change is required to achieve this. It is here that Turnaround management becomes more than just financial management and broader business skills are required.

Whereas in the USA where the Chapter 11 process introduced a new breed of Turnaround managers with operational experience as CRO’s the same is happening in Europe. Insolvency professionals, used to working in a strict legal environment, must adapt to a more commercial environment and absorb broader management skills. Some are fighting a rear-guard battle to keep control of debt moratorium processes. A case in point is delay to new legislation in UK where we continue to wait the outcome of the UK Government’s “Consultation on the Insolvency Framework”. Opinion was divided between the Insolvency community and the Turnaround community on control of moratoriums. At first it seems the insolvency profession is winning the debate. Notwithstanding Brexit however, the direction of travel being taken by the new EU Business Insolvency Directive highlights the need for a non-insolvency tainted process in the UK. Let’s hope the government takes the more enlightened business approach and embraces that flow. Live companies are worth more than dead companies and nothing is going to change that.

 

Alan Tilley – Chairman, BM&T
2nd October 2017

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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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