As published in the Business Post, March 14th.
Corporate partners Eoin Brereton and Bernard McEvoy discuss their experience in advising clients though crises including the ongoing pandemic in yesterday’s Business Post report on corporate restructuring and rebuilding corporate performance.
Philip Lee is one of Ireland’s leading corporate law firms with a strong corporate restructuring practice. Founded in 1993, it has grown from a specialist practice to a market leading, full-service firm. In 2020, Philip Lee merged with McEvoy Corporate Law and now has 35 partners and more than 60 lawyers operating from the Dublin headquarters and offices in London, Brussels and San Francisco.
Their corporate restructuring practice, led by Eoin Brereton and Bernard McEvoy, has drawn on its experience to expertly advise clients though countless crises, including the ongoing pandemic, when many businesses have had to make the tough decisions necessary for an effective restructuring.
“The Covid-19 pandemic has created huge challenges for businesses in all sectors and the level of uncertainty faced from March 2020 has been unprecedented,” said Eoin Brereton. “The main challenges have ranged from immediate and catastrophic loss of income, to challenges in dealing with suppliers, landlords, lenders and employees. And a big challenge we are seeing now is whether businesses need the same level of office space as before given how successful working from home has been in some areas.
“It has been heartening to see many businesses adapt and even thrive, but the pain is real across the sectors and will likely come into even sharper focus when the government supports are phased out in the coming months. At the outset of the pandemic, our team was central in making submissions to government on the need to enact temporary reforms to insolvency laws to protect businesses. We were delighted to see a number of the recommended actions being implemented last August in the Companies (Miscellaneous Provisions) (Covid-19) Act 2020.
“We have advised several businesses that have adapted to the current situation and are now thriving. As Albert Einstein famously said, ‘in the midst of every crisis, lies great opportunity’ – so there are opportunities there for the agile businessperson, be it clothing manufacturers diversifying into facemask production or the supply chain improvements implemented by so many businesses to enhance their home delivery services.”
Brereton says the starting point to any turnaround is to clearly identify the issues faced by the business.
“You need to know what liabilities are immediately problematic,” he said. “This kind of hard analysis will be key to knowing whether all or part of the business is viable and if so, what options are available. There are many potential mechanisms we can guide our clients through to effect a turnaround and in the last year, we advised the leadership group of a leading technology company on all aspects of the exit from the company of its private equity owners, the renegotiation and restructure of all syndicated debt and a fresh equity investment.
“Insolvency processes can also be valuable tools to assist companies in effecting a turnaround. But unfortunately, the nature of the process often results in change of control as new investors inject the necessary capital to enable the company to emerge as a healthier, leaner company ready to move forward.”
The legal expert says early action when a company is in the zone of insolvency, protects the individual directors and reduces their risk of personal liability. And this is crucial as it gives people the chance to start again even if the business ultimately cannot survive.
“The key steps for a director of a company in the zone of insolvency to take are to seek advice early, assess the position, open dialogue with creditors early and understand that their first duty is to creditors,” he said.
“The business needs to do everything it possibly can to avoid running out of cash before completing a restructuring. Directors deciding to continue to trade while insolvent may be at financial risk as they can become personally liable if they incur new liabilities when insolvent. They could also face restriction or even disqualification orders. So the directors need to ensure that the position of creditors is not materially worsened.
“Also, good records provide directors with evidence of the steps taken and factors at play in their efforts to address the business issues. This can be invaluable where the company ultimately fails and goes into an insolvent liquidation.”
Bernard McEvoy agrees and says transparency is crucial.
“Corporate governance is very much back in the spotlight this week due to the revelations about certain senior personnel and key management in Davy personally dealing in the sale of Anglo-Irish Bank Bonds,” he said. “It is particularly important when a company is facing financial difficulties and if it fails, its directors can be exposed to personal liability for company debts, restriction or disqualification orders and criminal prosecution.
“But the board, by following proper corporate governance procedures and not putting their heads in the sand, can limit or eliminate such exposures.”
McEvoy says it is vital for companies not to incur additional liabilities, to obtain professional advice, keep comprehensive board minutes, constantly review cashflow and liabilities and be very careful with the content of text messages and emails.
“If these steps are implemented, all may not be lost,” he said. “We have seen companies availing of financial difficulties as an opportunity to redirect their business strategy and management structures, with a view to putting the company on a sounder financial basis.
“It can be a difficult time, professionally and personally, for the board and management. However, if having followed proper corporate governance procedures and advice, a business cannot dig itself out of the hole, the appointment of a receiver/liquidator/examiner can often be a huge personal relief.
“Maybe we could look to Grandpa Potts’ advice in Chitty Chitty Bang Bang for encouragement, when he sings ‘For up from the ashes, up from the ashes grow the roses of success’.”
Original Business Post article available in PDF here.