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Only one of the 70 companies—indeed,
one that wasn’t key—broke ranks
and issued a winding-up petition. It
was galling, but that creditor had to
be paid. The rest agreed to payment
terms subject to a standstill and the
provision of ongoing supplies. All
of them have subsequently been
paid off, and they retain a client
that now pays on time and is a
well-run construction company.
What Company A and Company B had
in common was something that often
happens when a business is in a growth
phase—it can suddenly lose control of
project-related costs unless it has tight
control of all elements of its projects.
After considerable financial restructuring
and operational reorganization, both
companies avoided formal insolvency
and now thrive, with information
and systems that support the tight
management of projects. In both
cases the real challenge was to solve
organizational and management
problems, despite their initial belief that
their problems were simply financial.
Too often, turnarounds are characterized
by chief restructuring officers
being appointed to negotiate with
creditors, while real turnarounds
are normally only achieved through
a fundamental reorganization that
addresses the causal issues to ensure
the same financial consequences
are not repeated. Achieving such
organizational change requires respect
for and patience with others and the
interpersonal skills necessary to get
people to do things differently.
Both cases required the turnaround
practitioner to deal with a large
number of issues, all at the same time.
Both cases also involved preparing
detailed forecasts to work out what
the companies could afford as realistic
proposals for repayment. Both cases
involved dealing with creditors.
However, unlike nonconsensual
restructuring, the meetings with
creditors in these cases involved
members of management, who were
putting their credibility on the line in
making commitments with respect
to payments. The top team met with
major suppliers, and project staff
dealt with subcontractor creditors.
The only creditors dealt with by
the restructuring advisor were the
finance creditors and tax authorities.
A few key managers were prepared for
the negotiations through role playing
exercises, and everyone worked from
a script based on a template proposal
that offered realistic terms on a pari
passu basis, treating all creditors the
same. The key focus in all negotiations
was to get creditors’ support and
agreement to terms for future supply.
Despite the intention of achieving pari
passu repayment terms, there were
some ransom deals, but all payment
plans were fed back into the forecast
to confirm they were achievable.
staff, and suppliers—was involved
and bought in to delivering the
financial restructuring plan.
In addition to the financial restructuring,
both companies required a level of
operational reorganization. Analysis
of the fundamental causes in both
cases identified inadequate systems
and management, which, in turn,
had contributed to the loss of control.
This is not uncommon. Here the
consensual approach was also applied.
In both cases a companywide review
of staffing and training needs was
carried out with the focus on what
was necessary to deliver against
customer expectations. The focus on
the customers and involvement of all
staff helped get everyone on the same
side and secure their agreement to the
need for change. Once that was done,
they became involved in developing
a plan for introducing improved
processes and ensuring they were
adopted by others, not just themselves.
While this was a facilitated change
management process, in both cases the
staff, albeit with guidance, essentially
effected its own transformation.
Particular focus was placed on
responsibility and accountability
for delivering outcomes with the
introduction of reports and controls
to track progress, which were
alien concepts but recognized as
imperatives for successful projects.
Consensual restructuring requires
expertise in communication, negotiating
with stakeholders, patience, an
understanding of what motivates
staff to do things differently, how
people feel valued, and how staff
copes with stress and pressure. At
its core, consensual restructuring is
based on respect for others and the
considerable negotiating skills that
are needed when dealing with those
ransom parties that exploit a situation in
pursuit of a better deal for themselves.
Much of consensual restructuring is
about how people and problems are
approached. The court-appointed
manager or insolvency practitioner
feels obliged to take charge and tell
everyone what to do, whereas in a
consensual restructuring the emphasis
is on obtaining cooperation from
everyone involved. The difference
is in the philosophical approach.
Delivering Better Results
There has been some evidence that
consensual restructuring delivers
better outcomes than an approach
using formal insolvency procedures.
The consensual approach involves
restructuring advisors staying more
in the background, guiding staff
rather than leading from the front or
transparently taking over control of the
business. It is an empowering approach
such that managers should be expected
to run the business, not members of the
restructuring team, who are normally
considered outsiders. Their presence
is not required all the time, only at
key moments, such as when dealing
with creditors who seek preferential
treatment in return for their support.
Indeed, often restructuring advisers
and managers may inadvertently
hinder the process, as their presence
can discourage parties such as
clients and some suppliers from
dealing with a business, as is often
the case when a company is being
run by insolvency practitioners.
This is not to imply that consensual
restructuring is weak or ineffective.
To work, consensual restructuring
requires a strong management team
and a robust restructuring plan. Often
new managers need to be appointed,
especially when existing management
has previously attempted a restructuring
that didn’t work and as a consequence
has lost the confidence of stakeholders.
Indeed, one of the difficulties in any
restructuring is a lack of confidence
in the management team and its
ability to deliver a turnaround plan.
Secured creditors’ instincts have
historically been to take control away
from management by seeking court-appointed managers or receivers to