The coronavirus pandemic is likely to lead to a steep, and potentially protracted, economic downturn. In response, many countries have implemented ambitious packages to support households and businesses. Corporate restructurings can make or break a company and require significant focus on both - the 30,000 ft view and the smallest grain of detail. Our restructuring and insolvency team is here to help businesses during these unprecedented times.
It is more important than ever for directors assessing their options in the current economic climate to seek professional advice so that decisions can be made that will best protect the company, its creditors and employees whether that decision is that the criteria for the safe harbour provisions apply and a plan can be put in place that is reasonably likely (objectively) to effect a better outcome than immediate resort to a formal insolvency process, or, that the temporary relief provided by the COVID-19 package will suffice to tide the company over, or, that the appointment of an insolvency practitioner as an administrator will best serve a company that may be viable in the medium to long term.
The list below is not exhaustive of the issues but hopefully highlight the need to consider and take advice on loan agreements given the current coronavirus crisis.
- Non-payment
- Financial covenants
- Cross-default
- Insolvency
- Cessation of business
- Expropriation
- Breach of laws
- Material adverse effect (MAE)
- Audit qualification
- Information undertakings
When a company announces a distressed situation; this is in most cases, the result of an extensive impact involving important economic, legal, tax and accounting decisions; bankruptcy, excessive debt and regulatory constraints. A restructuring exercise can turn into a fairly high-profile event, and it is crucial to the future of the company that the end-to-end process is managed with great sensitivity, confidentiality and efficiency. This still leaves thorny practical matters such as how advisers go about due diligence from the comfort of their living room and how long this uncertainty will prevail.
If borrowers do not comply with their obligation to inform lenders of a breach, lenders are left in a difficult position - they do not want to risk wrongful enforcement but they do need to reassess credit risk and consider protecting their position and restructuring options to hopefully avoid a formal insolvency process, and ultimately achieve a better return by keeping the borrower trading.
We frequently draw upon the expertise of our restructuring and insolvency colleagues and their experience of advising on investing in companies in distressed situations, purchasing assets and businesses out of companies in distressed situations and restructuring companies near and in insolvency. We provide expert support throughout the entire lifecycle, delivered by local and global teams. This enables us to help banks create liquidity and unlock capital for reinvestment in other value adding lending activity benefitting the firm more broadly.
Our customers engage with our corporate-restructuring team when they face structural, financial, and operational challenges such as deteriorating
trends in company performance, refinancing, working capital and liquidity risks, issues with leverage, exodus of key management, clients or partners.
We can assist with:
- Practical steps to focus on liquidity and therefore long term survival;
- Overhead reduction and other mitigation actions;
- Management structures and change;
- Crisis management and adoption of new strategies;
- Cash-flow smoothing/managing payments to creditors (including HMRC and landlord discussions);
- Security and financing issues/discussions with lenders and investors (including refinancing);
- Informal standstill agreements/reorganisations; and
- Formal insolvency options.
Adan's team of professionals have substantial experience in financial restructuring and executing the sales of distressed assets to maximize recoveries for investors and creditors. We evaluate a full range of considerations including market conditions, liquidity needs, and legal and regulatory issues to identify the most efficient transaction solution.
Adan can help you in structuring complex transactions across the capital spectrum to curtail dilution and optimise the capital structure based on your objectives. More often than not, these bespoke solutions involve a hybrid of equity, and debt financing.
Our team can engage with you to: