What “triggers” may arise for businesses to consider a restructure and what solutions may be available;

Key issues our clients are currently experiencing:

• Working capital & liquidity challenges;

• Going concern issues from a regulatory perspective;

• Balance sheet distress;

• Preserving shareholder value in a distressed market;

Triggers

• Underperformance versus business plan;

• Refinancing challenges and impending maturities;

• Change in stakeholders;

• Actual or forecast covenant breach;

• Cash flow issues;

• Going concern issues;

Solutions

• Mitigate Short term liquidity pressures;

• Resolve balance sheet issues;

• Align financial stakeholders;

• Create a credible, stable platform moving forward;

Our services are tailored to suit the particular client, industry or stakeholder. We have recently been engaged in the following roles: 

• Provided restructuring advice to two significant airline companies, an Irish based regional airline and an international airline with a strong presence, preparing and filing an independent expert report on behalf of the companies as part of preferred restructuring process and developed conditions for survival as a going concern.      

• Advised a leading NI construction company through a successful financial restructuring and subsequent complex distressed sale transaction to a private equity fund, safeguarding a significant number of jobs and protecting key local supply chains.       

• Supported the executive team of a large hotel portfolio with operations in Ireland and UK, securing a successful refinance of their borrowing facilities.      

• Assisted a large NI based care home group with refinancing of its banking facilities between two large retail banks. 

What restructuring options are available?

Consensual Restructuring Plans

Business Type - All

Consensual negotiations should be the default starting position for Companies in distress and we have supported a number of clients in this area.

While such negotiations can yield quick results, in most circumstances, where there are multiple stakeholders, they will not produce a long term viable restructure plan.

In addition to the lack of long term restructuring outcomes, where each creditor is approached individually, some creditors may hold out on agreeing any terms while they await the outcome of negotiations with other creditors and may hold out for what they believe is a better return for them, thus making the process difficult to achieve optimum results.

Furthermore this process can be expensive and time consuming for management of the Company seeking the consensual agreements of its creditors, with individual engagement and negotiation taking place with each party on a stand alone basis and each agreement having to be documented and formalised on an individual basis also.

Incurring significant costs in a non-binding process, could further add to a Company’s insolvency risk where businesses are already experiencing working capital and liquidity challenges.

With this in mind it would be preferable for some level of creditor group negotiation in this scenario to ensure the Company has the best chance for survival and our Turnaround & Restructuring services team can support you in this process.

Schemes of Arrangements

Business Type – SME Sector with non-complex lending/corporate structure

A Scheme of Arrangement is a process used by a Company in financial difficulty to reach a binding agreement with its creditors to pay back all, or part, of its debts over an agreed timeline.

Schemes of Arrangement are viewed as a cheaper and more flexible alternative to other restructuring processes and as such may be the most efficient rescue procedure, depending on the circumstances.

How a Scheme of Arrangement can work

• The Company draws up scheme proposals for its creditors;

• The Company sends out the proposals to its creditors, together with notice of a creditors meeting;

• Meeting held where the Company explains the proposals;

• Creditors vote in favour of scheme; [NEED THE % TO GET IT APPROVED}

• High Court approves scheme;

• Debts written down as per the scheme’s proposals;

What are the advantages of a Scheme of Arrangement?

• Lower Costs – now less court involvement;

• Large write downs of debts can be achieved;

• Directors stay in control of the Company;

• Company continues trading;

• Company avoids liquidation;

• Once completed, the Scheme of Arrangement is legally binding on all creditors;

Deloitte have the expertise to can guide you through every step of the process to ensure that the Scheme of Arrangement has the best possible chance of success and that the process goes quickly, smoothly and cost effectively.

Part 9 Scheme of Arrangement

Business Type – Large corporates with complex finance/debt structures and multi- jurisdictional operations;

The process is an Irish Companies Act procedure, which can be proposed by any company subject to the jurisdiction of the courts of the Republic of Ireland. This can be achieved through centre of main interest (COMI) or by virtue of the parties governing law being in Ireland.

The process is very flexible and allows a Company compromise with its members or creditors (or any class of them), subject to it being deemed fair for all classes subject to the restructure.

A key point for this process, is that it is not a formal insolvency process. A company does not have to be insolvent, or facing imminent insolvency, before it can propose a Scheme. No insolvency practitioner is appointed, and the company directors retain control throughout the process.

However, compared to Irish Examinership legislation, there is no statutory moratorium available with regards ongoing payments during the process, and therefore a Company should always be aware of its underlying liquidity position throughout such a process.

The Process

Prior to the launch of the formal scheme, negotiations and commercial terms will be discussed and agreed and a “lock up” formalised to ensure the scheme meets the requisite approvals.

At the Court application stage, the Company will seek to have the matter admitted to the Commercial Court and seek directions in regards the convening of the Creditors meeting. Every notice summoning a meeting of creditors must be accompanied by a scheme circular explaining the effect of the Scheme and stating any material interests of the directors of the company and how the directors would be affected by the Scheme in so far as it differs from the like interests of other persons.

Where the Scheme affects the rights of debenture holders, a similar explanation in relation to debenture trustees must be given.

Once sanctioned by the Courts, a Copy court order must be delivered to the Companies Registration Office within 21 days of the order being made by the Commercial Court and the Scheme takes effect immediately on delivery of copy order to CRO.

Voting & Sanction

It is a condition that a majority in number representing 75% in value of the creditors (or each class of creditors) present and voting at the relevant meeting, either in person or by proxy (the “Special Majority”) votes in favour of a resolution agreeing to the Scheme before the Scheme can become binding.

Subject to these requirements being met, the Court may then proceed to approve the scheme, or request further information from the applicant Company in order to do so.

Another key point which is relevant to an Irish based scheme, is in seeking recognition under Chapter 15 of the US Bankruptcy Code for foreign based restructures, and to date such schemes have been approved under the said code.

With the ever increasing potential for a hard Brexit, the recognition of Irish schemes across the EU is also of considerate importance, where there is uncertainty regarding the future recognition of UK schemes in the EU, which may also be accessible to Companies in the sector.

The key benefits of an Irish Part 9 scheme are in the flexibility and speed of the process.

Examinership Process

Business Type – All. However, given costs, medium to large scale businesses with an imminent insolvency risk;

Examinership is an Irish Companies Act procedure, which can be proposed by any company where it can establish COMI in ROI. It permits a company to compromise with its creditors and propose a viable scheme of arrangement to the Court.

The appointment of an examiner provides the applicant Company with an automatic moratorium from all its creditors, in respect of balances due and owing up to the date of the application.

The scheme must demonstrate that all creditors would achieve the same or a better return from such a process versus a liquidation of the Company and disposal of assets and must be commenced and implemented within 150 days of the application.

Any amounts falling due during the protection period, including borrowings or leasing obligations, must be met and an applicant would have to demonstrate they had adequate cashflow for the protection period to meet such costs.

The scheme is only required to be approved by one class of impaired creditors, subject to no creditor being unfairly prejudiced by the scheme and it is a process that can be applied for by Companies that are insolvent or likely to become insolvent.

What are the advantages of an Examinership?

• Avoids liquidation;

• Protection from creditors – a Receiver or Liquidator cannot be appointed;

• Large write downs of debt can be achieved;

• Leases can be re-negotiated/ disclaimed;

• Company continues trading;

• Directors stay in control of the company during examinership;

• Gives the company time to be restructured;

Deloitte act as Court appointed Examiners and work with Companies through all stages of the examinership process to ensure a successful outcome. The opportunity which examinership affords for Companies to restructure is invaluable and obtaining early advice prior to and guidance throughout the process is critical.

Additionally, Examinership facilitates cross border restructuring as it is a specified insolvency process under Regulation (EU) 2015/848 on insolvency proceedings and subject to limited exceptions, the appointment of an examiner and any proposals under a scheme of arrangement for the company which have been confirmed by the Irish Court are automatically recognised and binding through-out the EU, apart from Denmark.

Examinership is generally a recognised process in the United States under the US Chapter 15 recognition process and is a more cost effective process than Chapter 11.

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