06 Aug 2021 | 11.08 am
Interview: Stephen Scott, Smith & Williamson
Early engagement with professionals is essential
06 Aug 2021 | 11.08 am
Businesses should start preparing now for when government Covid supports are withdrawn, says Stephen Scott of Smith & Williamson
Government supports and creditor forbearance have put many businesses in a wait and see holding pattern. Additionally, for any businesses considering a formal rescue procedure, such as examinership or the Small Company Administrative Rescue Process (SCARP) when introduced, Stephen Scott advises that although preparations should begin without delay, the actual process is best left as late as possible to have as much certainty about future trading and possible further lockdowns.
“When the supports are withdrawn, affected businesses will face decision time on their future viability,” says Scott. “This will depend on a number of factors including their financial strength entering the crisis, the sector they operate in, stakeholder support and the resilience of their operating model.”
In Scott’s view, restructuring activity will undoubtedly increase significantly. “This will entail difficult operational restructuring decisions, financial restructuring of balance sheets, negotiated agreements with landlords and creditors, formal rescue procedures and, unfortunately, liquidations for unviable businesses,” he explains.
Notwithstanding the sudden and unprecedented nature of the current crisis, tried and tested restructuring advice holds true, according to Scott.
“Early engagement with restructuring professionals is essential, allowing as much time as possible to assess the position and put in place a strategy before it is too late. Operational, working capital, cash generation and financing strategies may take some time to implement and benefit from,” he adds.
Accurate management accounting
“Directors should ensure that quality accurate management accounting and short term forecast information is readily available. This will be crucial in relation to internal decision making, for the third party advisers and finance providers, and if any formal rescue procedures are being considered. Directors will also have to consider communication with key stakeholders including lenders, customers, creditors, Revenue, shareholders and employees.”
Smith & Williamson assists distressed clients with informal arrangements with creditors, and Scott expects such activity to increase after the summer and into 2022. “The insolvency infrastructure isn’t directly relevant to informal arrangements, which will be through direct negotiation between the relevant parties,” Scott explains.
“However it does play an important indirect role, as each party will have to assess their position if negotiations fail and formal insolvency procedures come into play. For example, landlords will also have to assess their alternative position should negotiations fail and the tenant company enters examinership or liquidation.”
When company liquidation is contemplated, Scott stresses the importance of engaging the services of experienced insolvency experts to ensure that the process is run properly.
“Priorities for responsible directors will include being assured that all options will be explored in order to maximise the commercial return achieved for creditors, and that key aspects such as employee statutory claims are dealt with promptly. Other important factors are communication with creditors and other key stakeholders, overall case progression, and that clear competitive fees are charged.”
Scott’s other advice to directors is to be aware of guidance from the ODCE which addressed directors’ concerns in relation to potentially facing restriction proceedings if the Covid crisis led to the insolvency of their companies.
The guidance indicated that the ODCE will generally grant relief to liquidators from their obligation to make a restriction application in cases where the available evidence clearly demonstrates that a company director has acted honestly and responsibly in the conduct of a company’s affairs.
“Factors the ODCE will consider include whether appropriate professional advice was sought, the adequacy of financial information, the treatment of taxes, and the basis upon which the directors formed the view that the company would be able to trade out of its difficulties within a reasonable timeframe,” says Scott.
- Stephen Scott is head of restructuring & recovery services at Smith & Williamson
Photo: Stephen Scott (pic: Maxwell Photography)