Two visitors to Zolfo
Cooper Europe’s HQ cast a critical eye around the offices. ‘Not much change
as far as I can tell,’ says one. For Simon Freakley and his 200-strong team,
it’s exactly that: business as usual.
Freakley, who has seen a few MBOs in his time, pulled off one of the most
important of his life for himself this time – as Zolfo Cooper was spun out of
the European practice of US giant Kroll last year, while the credit crunch
started to batter the capital markets.
‘It was a very intense process, as is often the case. Our natures in our
profession are built around dealing with difficult situations, often under time
pressures and often involving a transaction.
‘To the extent we were doing it for ourselves instead of our clients was
different, but having said that, everybody’s used to doing these things in the
middle of the night. Whatever the law is that dictates these things, there were
a few all-nighters to see it through!’
Freakley says one of the most liberating things about doing the MBO was
shedding crippling regulatory demands. Because Kroll was part of MMC, a
NYSE-listed company, Freakley had Sarbanes-Oxley compliance, quarterly accounts,
and analysts meetings to deal with.
‘It took up a huge amount of my time. Now it’s all about maintaining quality.
We just think it’s a great business with great people and we were delighted to
be able to do an MBO. Of course, in September and early autumn things got
incredibly busy and then the challenge was how to complete the transaction on
the MBO whilst making sure that we were very focussed on our clients and
delivering on the assignments.’
Freakley says that his company is more than equipped to take on the
insolvency heavyweights of the Big Four and beyond.
‘People have referred to us as the fifth force in Europe. There are the Big
Four firms and then there’s us. Do we have a practice the size of PwC? No we
don’t. There are some cases – Lehman Brothers being one of them – where PwC is
an ideal choice, but for many jobs you don’t need to have 400 to 500 people on a
case, so people will make the choice based on prior experience, existing
relationships, the type of problem that needs to be solved or areas of
Zolfo Cooper is split up into two parts. Freakley heads up the European arm
while there is a US division with an HQ in New York. They are ‘completely joined
up in the goingto market sense’, but the two keep their profit pools separate.
Zolfo is also part of a global network through its affiliation with Ferrier
Hodgson, a leading insolvency practice with offices in Australia and Asia.
The practice also has a offices in the Caymans and the British Virgin
Islands, which Freakley says are strategically important because of the large
number of hedge fund holding companies incorporated there.
‘If a court procedure is required you have to be able to take the provisional
liquidation in Cayman or the BVI to be able to handle the activities that may be
indeed be located in the US or Europe.
‘In the BVI there’s something like 10,000 hedge funds registered and recent
commentary has suggested that there may be as many as 4,500 will close. For us
it was really important to have those centres of operation there to make sure we
could have a global proposition on the big hedge fund activity.’
Zolfo also provides creditor advice services, in addition to helping
companies and pension fund trustees work out the position of the pension fund,
any potential shortfall if the company goes through a distressed period, a key
issue in today’s economic climate.
But the meat of Zolfo Cooper’s work still lies in insolvency, and XL Leisure
was one of the most high-profile insolvencies of last year as hundreds of UK
citizens found themselves stranded overseas when the carrier collapsed.
With good reason, airline regulators are obsessed by safety concerning
aircraft or tour operators. ‘The overriding concern for everybody is whether the
fact the business is going into, or is already in insolvency proceedings will in
any way compromise safety standards. Will the pilots be distracted? Will the
support services linked to the aircraft be compromised by the insolvency?’
All these factors play a part in whether the regulators are happy for you to
fly an aeroplane, he says.
‘In the XL case, before the [administration] filing we had a conversation as
to whether it would be possible to fly the planes to bring people back home. But
they just couldn’t get comfortable in principle with the idea of an airline
operating in an insolvency procedure.
‘We had to keep our planes grounded and people had to be brought back in a
different way. It was a very intense job with acute media interest and [the
joint administrators] Alastair Beveridge and Nick Cropper have done a very good
job in a difficult circumstance.’
Restructuring is an expensive business and Freakley believes the opportunity
to rescue companies outside an administration proceeding is going to be limited
in the future.
‘Will there be a landing strip for businesses in distress because of the
availability of finance? How do you go about restructuring ie making material
reductions in the workforce and paying the redundancy liabilities or closing
down unprofitable operations and trimming down retail portfolios?
‘One of the reasons you’ll see potentially a significant increase in
insolvencies is because there won’t be the access to finance around the
management teams’ need. Whatever the weather, there are businesses that fail.’
Banks have been criticised for tightening up their purse strings but the
challenge for banks is whether to place their support into distressed situations
or put the limited amount of funding into their core customer base.
‘While I think it’s quite fashionable for people to blame the banks for not
lending money, the banks have got a real challenge.’
A much higher percentage of their customer base are facing very significant
issues which require management time to understand what support they need,
Freakley says. ‘There is also a strain on their available resources to meet
those working capital needs when they themselves have got limited access to
A different type of funding has hit the headlines recently and Freakley
wastes no time in weighing into the thorny issue of trade credit insurance. ‘If
[trade credit insurance] gets pulled it can make it very difficult because it
can accelerate the time scale in which you’ve got to find a solution. Trade
credit insurers are in business just like everybody else, but in my experience
it’s the speed and the lack of notice companies get about the reduction of
withdrawal of the facility that can turn a difficult situation into a crisis.’
IPs are in high demand at the moment and while no-one likes the idea of
profiting from other people’s misery, the simple truth is that fees are on the
Practitioners usually offer a discount on their full rates, but Freakley
predicts this will change. ‘I suspect as IPs become more in demand, discounting
will become less common. People will be charging the full rate for what they do.
Some of the cases that have been handled out of the UK have been some of the
most sophisticated, difficult, and also some of the most successful.’
With the MBO done and dusted and 2009 set to be a bumper year for the
insolvency trade, Freakley says he is really enjoying being back at the coal
face. He has plenty of work lined up but as is the way with the insolvency trade
he can’t talk about it until the distressed company decides to bite the bullet
and authorise a public statement.
‘Before with my corporate role it wasn’t possible for me to directly spend
any time on client assignments. Now I‘m absolutely knee deep. It’s been really
nice to get back to what I was trained to do.
‘The size and nature of the problems and the circumstances in which we’re
having to tackle them is just unprecedented.’
The pitch process is something that is usually kept under wraps but Freakley
lifts the lid on the highly secretive procedure.
First off, he rejects the idea that vying for a big ticket job can be a
‘It’ll normally be one Big Four and us with maybe one of the other specialist
insolvency companies such as Alvares and Marsal, or Alix Partners and people
make their choices.
‘Often with these pitches they are choreographed in such a way that as one
person leaves you go in, or you can find yourself sitting in the reception
‘We’ll be asked for recommendations if we’re not the right people for the
job. There are key players and everybody has an understanding of what each
others does and a pretty healthy professional regard for each other. Everybody
knows they can’t win every pitch.’
Clearly most of the talk focuses on price, but the time issues are a critical
component of the assignment, Freakley emphasises. ‘It’s about the value that can
be driven in a fairly tight timescale.’
Being so busy also raises questions about there being enough supply to meet
the demand. ‘The challenge for stakeholder groups will centre on whether their
first choice to doing the work will have the bandwidth to be able to take on
another case at that time. The week after Lehmans filed, would PwC have been
able to take on another job? I doubt it.’
Certain practices at certain times are going to be extremely busy and they
won’t be able to take on more work.
Freakley says he is looking to expand headcount by 25% off the back of the
recession, over the next 18 months and snapping up highly skilled people from
the troubled investment banking world is high on the agenda.
‘We’re interviewing a lot of people from investment banks. Every
restructuring and insolvency practice is actively recruiting. We’re not just
recruiting people with restructuring and insolvency experience, but those with
transactional and financial modelling skills because we need those skills
‘The catch net for recruiting is broadening slightly to capture those skills.
18 months ago everybody would’ve had the ability to take a case on, I’m not sure
that’s true now.’
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