06 Aug 2021 | 12.16 pm
Interview: Declan McDonald, PwC
Financial restructuring centres on quality information
06 Aug 2021 | 12.16 pm
Declan McDonald, who leads the business recovery services practice at PwC, is an insolvency lifer. He has been with PwC for about a dozen years, and before that worked with Grant Thornton. Altogether, McDonald has 25 years experience of being a receiver, examiner, liquidator and adviser in distressed company situations.
Lenders in particular turn to McDonald and PwC when their loans go sour. “We’re probably not the first port of call for the corner pub that needs to go into liquidation,” he explains, adding non-financial mid-market firms are also on the client roster.
The fallout from the property crash kept McDonald and his colleagues busy, a time that he recalls with hindsight as “a bit crazy”.
“We quickly got up the curve in terms of commercial real estate and development land and all that kind of stuff. We’re still at the tail-end on a few of those that are still being worked through. It’s amazing really how long it’s gone on,” says McDonald (pictured).
In McDonald’s view, the current commercial landscape bears no comparison to a decade ago. “It’s hugely different,” McDonald notes. “People have different views in terms of the wave of distress that potentially is going to arrive upon us when the supports are withdrawn and various elements of forbearance are scaled back.
“I think there will be a cohort of businesses that will struggle, and the statistics are speaking to that, insofar as insolvency numbers are abnormally low at the moment. That tells us that there are many businesses who’ve hung on with the supports and the forbearance. Companies that in normal circumstances would have been wound up will ultimately be wound up anyway. So what’s coming is an element of catch-up.”
At the same time, McDonald notes the interesting dynamic developing around inflationary pressures. “There are definitely signs of a bit of a post-pandemic boom,” he says. “Anecdotally you’re hearing about pressures within the construction sector in terms of supply and pricing, and staff shortages in hospitality. That inflationary environment may cause problems down the track.”
For the cohort of businesses dependent on supports, McDonald’s opinion is that if they were good business coming into the pandemic, they will be good coming out of it too. The impression McDonald has from conversations with banking executives is that there doesn’t seem to be obvious signs of distress across their books at the moment. He believes there is going to be a level of pragmatism among lenders, particularly the traditional lenders, because they are conscious of the employment piece.
“I don’t think the banks will be that anxious to enforce against trading businesses where there’s decent dialogue going on,” says McDonald. “However, borrowers have to present proposals that share the pain. That could mean equity being introduced to the business as well as looking for some sort of debt restructure.
“One of the things that frustrates the lenders is the quality of the information they receive from customers, even just the way it’s presented. In recent months there has been lack of trading visibility, and as that picture becomes clearer, it becomes easier to forecast. The advice I would give to businesses is that if you’re going in with an ask, it has to be backed up by quality information on your outlook and financial information on your business.”
McDonald welcomes the new SCARP small company rescue process, though he wonders how successful it will be. “We’ve always had a liquidation culture in this country and I think it’s positive that we’re moving towards more early intervention. What I worry about it is that the legislation has been accelerated by this particular crisis instead of being part of a longer term vision. For companies with warehoused tax debt and landlord issues, it will be problematic to engage with SCARP.
“However, there was some scepticism surrounding the personal insolvency process when it was introduced, and it has proven to be a success. There will need to be a certain amount of pragmatism to make SCARP work.”
Pic: Maxwells Dublin