Thought Leader: Alan Meek on Insolvency & Restructuring
Even in the highlands, business finds a way of falling into crisis. To this end, Alan Meek works hard with his clients in finding the fastest solutions, the most efficient methods and the best results. Below Alan tells Lawyer Monthly about the crucial and significant differences between the UK and Scotland’s restructuring law, the impact of social and political scenarios on businesses in Scotland, and about the solution he provides his clients with on a daily basis.
As a specialist advising on all aspects of corporate insolvency and restructuring – which sectors would you say are currently experiencing distress/insolvency and restructuring more than others in Scotland?
Currently we are seeing considerable strain on businesses associated with the North Sea and renewables but other sectors such as care homes and property are also stressed. As with other parts of the UK the causes are a mix of global, European and local political and social issues. It would be fair to say that the Scottish economy is dependent upon the public sector to a greater extent than is the case for many regions south of the border and that brings its own challenges at all times but particularly in times of austerity.
What would you say are the most common restructuring and insolvency mechanisms for distressed corporations in Scotland. Is Scotland different in this regard from the rest of the UK?
There are a considerable number Alan Meek, Partner at MacRoberts LLP of differences between Scottish insolvency law and practice and the law and practice in the rest of the UK. The basic regimes and processes are the same – administration, liquidation, receiverships and CVAs but there are significant differences. We don’t have LPA receivers for example and our fixed and floating securities are different. In Scotland a landlord has a form of security for unpaid rent that ranks ahead of the floating charge. Our court system is completely different of course and it’s worth knowing that Scottish limited partnerships have their own legal personality so they can, themselves, go into formal insolvency. When they do, they go into sequestration (Scottish bankruptcy). We don’t have the Official Receiver and we have our own set of Insolvency Rules. We also seem to make more appointments of provisional liquidators north of the border. In Scotland we have historically made proportionately less use of CVAs for restructuring than in England and Wales. There are a number of reasons for this – practitioner unfamiliarity and perceived cost compared to other processes being the two main ones. The risk of running a CVA without an administration wrapper is also a large disincentive; having said that, CVA usage has increased recently. Administration (with a prepack or other business sale) is by far the most common process used in business restructuring in Scotland.
So, in summary, corporate recovery is practised a bit differently here in Scotland although the broad outlines would be recognisable to other UK practitioners.
Politically, liquidation, sequestration, and receivership are devolved issues. Administration and CVAs are not. That is confusing and unwieldy and hardly conducive to flexible and responsive policy-making and social engineering.
What can make an insolvency turn contentious? Why do businesses need to consider seeking specialist advice at the earliest sign of difficulty?
Insolvencies/restructurings turn contentious principally when the competing claims and requirements of stakeholders cannot be accommodated. That may be lenders vs management or differing groups of landlords being treated differently. The trick (if there is a trick) is ensuring that as much fairness as possible can be meted out to the different interests (within the strictures of the Insolvency Act of course) at the same time as delivering an effectively restructured business.
At what point can a reorganisation plan be proposed it?
Really, the earlier the better. The further down the decline curve a business goes, the fewer are options it has. If the plan involves some pain for all, and needs to be consensual to any degree, it is better to ensure that the business still has breathing space and options on the other side if Plan A cannot be satisfactorily implemented. It is important to identify stakeholders and involve them as early as possible.
How challenging is assisting with the restructuring of a corporation?
It is challenging. But I think the professionals involved sometimes forget that it is actually the management team who bear the brunt of what has to happen. They are the ones who have to implement a turnaround plan within the business (an insolvency process is really only the framework mechanism that allows the opportunity for a business to recover). The workforce has to live with the emotional and commercial upheaval and uncertainty associated with business distress. It is necessary to appreciate that there are individuals involved and not just corporate entities. There can be a bit of a social work or counsellor role in some cases. For the advisors, it is challenging – but it can be very rewarding too.
What can you bring to the table to assist when your clients face distress or insolvency?
Sometimes insolvency just cannot be avoided. Sometimes economic factors conspire against a business to such an extent that it renders their business model unsustainable. Catastrophic falls in property prices or changes to Government funding arrangements would be examples. If that is the case, the management are obliged to ensure that the impact on creditors is minimised as far as possible. That will often require professional advice to affect the best outcome and, if insolvency can be avoided, professional advice will maximise the chances of that occurring.
Is there anything else you would like to add?
We are obviously living through an unprecedented time of change in the political landscape. Brexit, a change of Prime Minister and ongoing considerations of Scottish independence mean that there is great uncertainty for businesses now and in the foreseeable future. UK and European banks appear to be under stress to an extent not seen since just before the 2008 crash. Inevitably this will put additional strain on our clients’ businesses. Some will find ways to weather these storms, others will not. As advisors, our role will be to help those businesses deal with the challenges they will face. It won’t be easy – but then again, if it were easy, no one would pay us to do it. We are certainly living in challenging times and it is often said that what businesses and investors crave most is stability. The uncertainty attaching to Brexit and Scotland’s place in the UK means that investment decisions are being deferred or indeed cancelled. If a business has a model that is largely dependent upon EU sales, what should it be doing now to prepare for the next few years given that no one can tell it whether or not it will be able to export in the manner that it has done hitherto? As the curse goes, “may you always live in interesting times.” We are certainly living in interesting times but I suspect many businesses yearn for the dull days to return.