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Company doctors? Working together in Europe today

Company doctors? Working together in Europe today. Stephen J Taylor TMA Conference London 14 th October 2005. Company Doctors?. So who am I? Partner at PwC until recently Led the Continental European practice Worked with debtors as well as creditors

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Company doctors? Working together in Europe today

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  1. Company doctors? Working together in Europe today Stephen J Taylor TMA Conference London 14th October 2005

  2. Company Doctors? • So who am I? • Partner at PwC until recently • Led the Continental European practice • Worked with debtors as well as creditors • Advised governments and international institutions • First to “use” the EU insolvency Regulation • Started life as a concert promoter • Now fishing

  3. Company Doctors? • Agenda: • Drivers for change in approach to restructuring • The role and focus of an insolvency practitioner • Some new techniques • A new approach

  4. Company Doctors? • Key Points and Conclusions • There is a real need for Company Doctors – CROs and IPs • Insolvency laws are moving towards rehabilitation, Chapter 11 style • New techniques have been developed • A new paradigm is needed in which CROs and IPs work together as a team

  5. Company Doctors? • Drivers for change (i) • Businesses and economies of Europe need repairing: • Germany, Italy, France • Automotive, Textiles, Retail • Little popular support for radical change • US providers of finance, often through secondary channels • European Banks learning from US/Asian techniques

  6. Company Doctors? • Drivers for change (ii) • Avoidance of insolvency • Parental support • Institutional support for businesses and/or CROs • Only when things are not too bad • Partial amputation • US abandoning European subsidiaries

  7. Company Doctors? • Drivers for change (iii) • Old insolvency laws: based on punishment and probate • Focussed on traders and small businesses • Unsuitable for modern businesses: • IT • Service Companies • Complex Group Structures • Issues around supply chain management

  8. Company doctors? • Drivers for change (iv) • Growing awareness not delivering satisfaction to most stakeholders including government • Independent and public rating of effectiveness of insolvency process • Lisbon 2000 encouraging entrepreneurship but recognising that entrepreneurs need support • Brussels: Blocking state aid

  9. Company Doctors? • Focus of insolvency practitioners • UK: Accounting groups • Europe: Small legal practices - risk averse and process driven • Exacerbated by licensing (UK) and court (European) attitudes • Concerns re personal (firm) liability

  10. Company Doctors? • Focus of insolvency practitioners (ii) • Primary channel to market is the banks “get the money back” • Suppliers covered by trade insurance • Sell the assets as quickly as possible • Need to blame someone • Find the Fraud • The IP is king. No room for a pretender

  11. Company Doctors? • Some techniques used by the enlightened • IPs converting into CROs • Firms recruiting CROs • Imaginative use of insolvency law eg • Prepacks • Forum Shopping

  12. Company Doctors? • Forum shopping • EU Regulation 1364/2000 • Company should be liquidated where its CoMI is • Intended to avoid forum shopping but made it worse • Used to find a friendly regime: • More flexible, especially to allow prepacks and high levels of discretion (eg Parmalat, Rover) • Preselection of IPs (Collins and Aikman) • Mitigate liability of directors

  13. Company Doctors? • Towards a new approach • US: a rescued business is worth more (to all stakeholders) than a liquidated one • IPs can help to rescue businesses by: • Freezing creditor action • Breaking onerous contracts • Getting assets into someone elses hands • Fixing balance sheets • This is not always enough

  14. Company Doctors? • Towards a new approach • IPs cannot rescue a business alone • IPs need to work with CROs with clearly established roles: • Problems if the IP insists on the lead role • Problems if the CRO undermines the IP • Both are company doctors but doctors bring different specialities to the theatre

  15. Company Doctors? • CRO - the surgeon • Clear view of what needs to done • Remove or alleviate the problem • Consider and prepare patient for longer term • Blamed if • Cuts a vital organ or artery • Performs the wrong operation • Cuts off the wrong leg

  16. Company Doctors? • IP is the anaesthetist • Is the patient strong enough to survive the anaesthetic • How much anaesthetic should be applied: local or general. Appropriate for the length of the operation • Monitor vital functions during the operation • Blamed if: • Wrong anaesthetic used • Patient deprived of oxygen (funding?)

  17. Company Doctors? • “Anaesthetists.. Drug their trusting subjects through somewhat ardous surgical procedures. They possess a wry if somewhat macabre sense of humour” • Surgeons.. Should be able to tackle anything they can get their knife into. Any size of brain is permitted at a push but you will be expected to have the same attacking instinct as the Real Madrid forward line and a disturbing if not morbid interest in finding out how things work” ……Bluff your way in Doctoring

  18. Conclusions • Insolvency is moving out the dark ages • .. So are some IPs • The CRO is a vital part of the process and must be allowed to be involved • There is little point putting a patient under the anaesthetic if there is no repair operation • Rescues from insolvency need teamwork between CROs and IPs

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