Businesses across the globe have been negatively impacted by the current pandemic, and Mason Hayes & Curran LLP (MHC), a business law firm with 95 partners, has one of the largest restructuring and corporate turnaround teams in Ireland. The team has unrivalled experience acting in complex restructuring, insolvencies and distressed situations across all sectors, so they know how to best to advise in these difficult times.
The Dublin-based partnership routinely advises on restructures, insolvencies and on the sale, purchase, and financing of distressed assets, and partner Micheál Grace says difficulties lie ahead for many companies across the country.
“Businesses in every sector are facing multiple challenges, chief amongst them a loss of income coupled with huge uncertainty,” he said. “Planning and predicting is probably more difficult than it has ever been and this results in challenges in dealing with customers, suppliers, landlords, lenders, and employees with the overriding risk that the business will be unable to recover.
“These challenges are coming into very sharp focus as businesses reopen, with the various changes and limitations adversely affecting a return to any kind of normality. Some will have had problems prior to the crisis; others will have been thriving. While different considerations arise for each, all will benefit from advice on cashflow management, directors’ liability, employment issues, renegotiating leases, banking facilities and other contractual arrangements.”
Grace, a financial services lawyer, says that in many situations, lenders have agreed payment breaks – but they are typically short-term and the business will need support when those arrangements expire.
“Borrowers will need to agree new financial covenants and perhaps term extensions to absorb reduced revenues and the inevitable higher debt service costs which will have been incurred in agreeing deferred principal and interest payments,” he said. “We have advised clients on all sides of these equations and can provide informed and practical advice.”
Judith Riordan, an insolvency lawyer with MHC, says it is vital for companies to know what liabilities are problematic, whether all or just part of the business is viable and what options are available.
“Regrettably, there will be business casualties but, with the right advice, there is always the possibility of being able to start afresh,” she said. “We have frequently advised directors of companies faced with the difficult decision to place the company into an insolvency process. But, having fulfilled their duties and protected themselves from the risk of any personal liability, many have been able to start again in the same or similar business free of the legacy financial issues.
“Early dialogue with creditors is often overlooked, but can be critical in terms of resolving issues consensually as pressure from one or more creditors can distract management from considering solutions to the overall financial issues.
“Crucially, a business needs to avoid running out of cash before completing any necessary restructuring as trading while insolvent and incurring liabilities which may not be paid presents personal risk for directors.”
Corporate governance is also important, and Riordan says that if a business is verging on insolvency, the directors must ensure that the position of creditors is not materially worsened.
“This can be a challenging time for directors as they must balance their duty to creditors with the objective of solving the company’s financial difficulties,” she said. “Difficult decisions will arise where projections are more uncertain than ever, and the risk of insolvency is greater.
“So, if there is a divergence of opinion amongst the directors regarding steps being taken or the prospect of the company’s financial position improving, then it may be advisable for individual directors to take separate advice to protect their own position.
“And while an entity may not have a future, each director needs to give careful consideration to the impact of an insolvency on their personal ability to be an entrepreneur and continue working into the future.”
Since the last financial crisis, Grace said, the market for finance has broadened considerably with the arrival of alternative and direct lenders, peer to peer finance and similar disruptors. Each of these offer their own advantages when compared with traditional banks, but certain aspects of their lending model may not be attractive or suitable for all businesses.
“Before considering a formal restructuring process and where the owners are not in a position to make any further investment, it is certainly worth considering where further debt is obtainable and, in the circumstances, appropriate to avail of,” he advised.
“We understand that managing cashflow is critical in these times, and it is absolutely necessary to assess whether credit terms are being adhered to, or whether lax practices have crept in over time with respect to payment timeframes and discounting.
“Business failure associated with inadequate cashflow is not uncommon, even in better economic times. However, poor cash management issues rarely cause the sudden, dramatic collapse of a business. Rather, they can give rise to a gradual downward spiral. The effects of this crisis are different and accordingly, urgent contingency planning by businesses is required if they are to combat the economic consequences of the pandemic.”
But while many companies will need to make drastic changes to ensure future success, Grace said there was light at the end of the tunnel.
“Where businesses have functioned well in the changed business environment, there will now be a focus on resourcing and whether existing staffing, premises, suppliers or business lines are required going forward,” he said. “There will also be a focus on leaner management structures, and it’s quite likely that certain individuals have excelled in the new trading environment and have been able to pivot and operate successfully in challenged circumstances.”