Martin Gudgeon, head of Close Brothers corporate restructuring group, warned that ’embarrassment’ about the disclosure of problems could cost FDs their jobs.
‘FDs should call (for restructuring) sooner rather than later. There is a lot of emotion around financial troubles. If they withhold information, there is a greater chance they will lose out in the restructuring process and be replaced by someone who is open and transparent,’ he said.
The economic climate of the past 12 months, Gudgeon argued, has cast aside much of the former prevalent reluctance to own up problems. ‘Boards of directors are more accepting to the realities of life,’ he said.
As a result, the tendency to view restructuring as an embarrassment is giving way to viewing it as an opportunity to make tough decisions.
‘Companies can use the restructuring process to amend and improve contracts, make more aggressive cost savings,’ he said. ‘In the context of distress, you can put through decisions that otherwise would take longer to implement.’
Because a restructuring process can be used as a tool to reduce overheads and improve efficiency and profitability, Gudgeon believes ‘smart FDs’ accept it as an inevitability. He also noticed that FDs are increasingly open to the take-over opportunities embedded in a restructuring process.
He explained debt-laded companies can fall into such distress that creditors often opt for security and prefer to recover a small portion of cash rather than getting nothing at all. ‘This opens opportunities. It’s a lot of work, but you can buy a company’s debts, then sit through a restructuring and end up with control of the company. People have woken up to the potential benefits and opportunities of restructuring,’ Gudgeon said.
But Gudgeon warned FDs to be careful in the selection of their financial advisor. He said restructuring experts need a different approach to generic corporate finance accountants, who handle typical deals such as merger, acquisition or management buy-out.
He argued that restructuring deals lack the presence of an independent third party at the other end of the table to level out negotiations. Instead, there are more players involved who present the same side but still have their own agendas to follow.
‘To get restructuring done, you must always have a plan B – you need to come up with an “or else” scenario. It needs to be sufficiently nasty to make people do plan A. That’s why respray corporate finance directors fail in restructuring deals – it needs a specialist,’ he explained.
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