William Buck: Saving companies in financial distress
William Buck is a leading firm of Chartered Accountants and advisors with offices across Australia and New Zealand. The firm’s Business Recovery Services team is a well-established middle market practice with experience assisting companies in times of financial distress to achieve the best outcome for all stakeholders.
Michael Brereton is a director of William Buck’s business recovery team. He is a leading corporate restructuring advisor and insolvency practitioner with significant experience assisting companies that are underperforming, facing financial distress, or in need of financial restructure. The recovery team focuses on the middle market, in particular owner-managed businesses, enterprises and mid-market ASX-listed companies. As part of a special report on the crucial service of business turnaround and recovery solutions, The Australian Business Executive spoke with Mr Brereton about how engaging a restructuring advisor can significantly improve the chances of a business in financial distress being able to continue operating.
Protecting directors and companies
“A restructuring advisor is typically a qualified professional advisor,” Mr Brereton says, “appointed when a company is facing financial distress, or is likely to be facing financial distress in the near future if action is not taken in the short-term to fix the issues being faced.”
There are a number of roles that a restructuring advisor can take, dependent on the circumstances being faced by the company. The recent introduction of new government safe harbour legislation helps protect directors of companies that are facing financial distress.
“Before the new legislation was introduced, directors of a financially distressed company who were attempting to rescue the company had to contend with our previously draconian insolvency trading laws, which placed directors at personal risk for any debts being incurred by the company.”
The new laws have allowed restructuring advisors to assist such directors to claim protection against being personally liable for a company’s debts, allowing the process to run more smoothly and be less financially damaging for directors.
“Another role that a restructuring advisor can undertake is to assist a company dealing with banks and secured creditors,” Mr Brereton adds. “[They] can also play a major role in assisting management of a company to develop one or more restructuring plans to save the company and avoid insolvency proceedings.”
An advisor can also assist a company in negotiating new arrangements with third-party suppliers and creditors, allowing additional time and funding for the development and implementation of a restructuring plan, as well as assisting with the raising of equity and debt.
“Restructuring advisors have significant expertise and experience in managing a multitude of issues which arise for any company facing financial distress. Existing management frequently do not have the necessary experience or the capacity to deal with the additional workload which arises in these situations.”
The result of this lack of experience is that management is often doing little more than putting out fires, finding that it does not have the capability to rectify all issues and ensure that the company is able to survive long-term.
In many cases, an advisor will work in conjunction with the management team and other specialists such as legal advisors, media, forensic, IT, and even cyber advisors, as well as industry specialists.
“The restructuring advisor’s role is to assist the company to achieve the best results and to maximize the chances of the company continuing as a going concern, protecting value for the company, for stakeholders, and most importantly retaining jobs for the employees.”
Act before it’s too late
In times of financial distress, Mr Brereton recommends that all stakeholders should consider engaging a restructuring advisor, whether it be the CEO, Board of Directors, CFO, senior management, or even lenders, creditors and shareholders.
“We’re frequently brought in by financiers or secured creditors, and even suppliers, to distressed companies,” he explains, “all of whom can benefit from advice that can be provided to them in how to deal with the company, and how to maximise their position.”
An increasingly common occurrence is a company’s management bringing in an advisor with the tacit approval of its bank, which can take comfort from the fact that management is being professionally and independently advised on the best course of action.
A general misconception of restructuring means many people believe that when an advisor is engaged it is for the sole purpose of chopping up or liquidating a business, when in reality the process can open up a number of other options for an ailing company.
“The range of options expanded dramatically over the course of the last year, when the government introduced the new safe harbour legislation. Provided directors meet certain minimum requirements, [they] are able to obtain the benefit of the safe harbour protections.”
An important part of the new legislation is the requirement for a qualified restructuring advisor to be appointed to assist the company in formulating a plan deemed to be likely to lead to a better outcome for creditors than would be attained through liquidation.
“In most cases that’s reasonably easy for a restructuring advisor to work on and to put in place all the safeguards. In addition, [they] will work with the management and the company to implement the plan.”
First and foremost, directors are concerned with saving the company. In that respect, the additional support and expertise provided by advisors in terms of balance sheet restructuring, cash flow management, raising capital, dealing with banks and secured creditors, and much more, can be invaluable to a company.
“Unfortunately, it’s far too common that we see a scenario where management and the board really are in denial,” Mr Brereton says, “and don’t reach out for assistance from a properly qualified restructuring advisor until it’s too late.”
A successful restructure will invariably take a significant amount of time and funding to complete, meaning companies that leave the decision to call in a professional until the last minute risk missing the chance to turnaround its fortunes.
“If you compare this to the US, which has a reputation of a strong business rescue culture, and is regarded as very entrepreneurial – if you actually look at the US bankruptcy law, Chapter 11, while it’s held as the benchmark for restructuring, it’s actually a very cumbersome, very expensive process, which requires a lot of upfront funding and a lot of time.”
All of which means that companies will need sufficient time and funding to put a restructure in place. Waiting until insolvency becomes evident is usually too late for anything effective to be done.
“Management need to act as soon as they get an indication that the business is facing some degree of financial distress,” Mr Brereton says. “If they reach out early enough, they give themselves the best chance of actually saving the business.”
Selecting the right advisor
The process of restructuring is not something that most healthy and solvent businesses will be familiar with. Because of this, it can be a particularly confusing process for management to choose the right advisor to have the greatest impact.
“Any business looking to appoint a restructuring advisor needs to make sure the advisor has a broad base of turnaround, restructuring and insolvency experience. I would recommend that the board look at any of the ARITA professional members.”
Members of ARITA are required to take a rigorous post-qualification course, and all have a broad experience of finance, accounting and law, meaning members are held in very high regard in the industry.
“Restructuring advisors become a trusted advisor to the company and management, and the board needs to have confidence that the advisor has the appropriate expertise and experience to assist them in troubling times.”
William Buck has an experienced team focused on the middle-market with a strong track-record in assisting companies in financial distress. The firm’s work helping these companies is usually conducted out of the public eye and kept confidential.
One of William Buck’s recent projects arose from an approach for the recovery team to take the role of safe harbour advisor to the directors of a retail company struggling to stay afloat in the nation’s current retail climate.
“The business was faced with sharply declining revenue. Management had not foreseen the changes to the business and were struggling to react in time. While management had been desperately trying to stem the declining revenues, and were looking for alternative growth areas, they weren’t meeting with much success at that point in time.”
William Buck’s initial role was purely as a safe harbour advisor, but this quickly expanded to assisting the CFO in engaging with the bank, which clearly had a very different point of view about the business’ prospects than the company did.
“We found we were almost acting as translator between the company and the bank, and while the bank thought they’d clearly signalled to the company that they had some serious questions on the viability of the business, and was looking at exit strategies, management of the company were looking at how do they grow out of the current predicament.”
Eventually William Buck was able to work with the company and bank to put a restructuring plan in place, part of which involved developing a cash-flow model which set out the basis for the turnaround of the business.
“On the back of that,” Mr Brereton says, “we were then able to assist the company to negotiate a twelve-month forbearance agreement, subject to a number of conditions, one of which was that the company raised capital.”
With William Buck’s assistance, the company was able to raise capital, which was used to partially pay down the bank, with the balance helping sure up the solvency of the company and provide for future growth. The company then had a solid base to continue operating.
“[This] was a great result, in the sense that the management, the directors, the banks, the shareholders, and most importantly the employees, all got something out of it. While there were some minor redundancies, the vast majority of the company continued operating, value was retained and the business continued operating.”
Mr Brereton concludes that directors of companies facing financial distress should reach out quickly to appoint a properly qualified restructuring advisor such as William Buck, in order to significantly improve the chances of the business being able to continue operating.
Find out more about William Buck by visiting www.williambuck.com.