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Articles contributed by KPMG LLP
JJB Sports plc (JJB) is a high street retailer which had fallen into diffi culties and couldn’t determine a mechanism for dealing with the lease costs of its closed stores, which created cash pressures. A rescue of the business would only be possible if its landlords consented to a compromise. However, there had already been other high-profi le failures to achieve landlord consent. We developed a tailored Company Voluntary Arrangement (CVA) which was approved by 99% of creditors. Blane Leisure Ltd’s CVA (a wholly owned subsidiary) was approved by 98% of creditors. No one in attendance at the Creditors’ Meeting on 27th April 2009 voted against the proposal.
When asked how long the current credit crisis will last, Mick McLoughlin, Global Head of Restructuring at KPMG, tends to take issue with the question. He maintains that we are no longer in the grips of a credit crisis. Instead, he maintains that we have moved on to something far more difficult to escape from; a crisis of confidence.
In the aftermath of the initial credit crunch storm, smaller market participants are feeling the pinch. It is possible that some of these will have insufficient liquidity to continue to trade, or will fail to meet their capital ratios, and may have to seek support from a stronger participant or wind themselves down. However, it is also possible that some will follow Lehman into insolvency.
The current recession is unprecedented, which makes the outcome difficult to predict. But one thing is certain: it is very dangerous to keep talking down the economy. We do not want to see a deep, prolonged recession. What we actually need, after the excesses of the last four or five years, when too much finance was available, is a correction or readjustment of the economy, not a wholesale recession.
This article discusses the way in which the CVA, a highly flexible UK insolvency procedure, was used to implement a complex cross-border restructuring without damaging the operations of a global Tier One automotive supplier.
Insights from 2008 research into cash and working capital management
This time a year ago you probably looked forward to phone calls from your bank. They tended to be from the friendly relationship manager inviting you to another cricket match or perhaps a convivial catch up over lunch. Today the same bank may find you slightly less enthusiastic about their calls.
According to some commentators, the credit crunch possibly represents the worst financial crisis since the Great Depression. Outside the financial sector, however, in the ‘real’ economy, employment is holding up, many companies are predicting continued growth and talk is of a period of readjustment rather than deep recession
‘Cash is king’ is one of those phrases that business executives often pay lip service to, but relatively few really mean it and even fewer really understand what it means. For many of those executives, cash has never been a real issue. It has always turned up when it has been needed.
‘Damocles was an excessively flattering courtier in the court of Dionysius II of Syracuse, a 4th Century BC tyrant of Syracuse, Italy.
In the spring of 2007, the English coastal village of Portchester welcomed a new corporate citizen. Schefenacker, a manufacturer of mirrors and lights for the global automotive industry, relocated its headquaters from the German town of Schwaikheim near Stuttgart to Hampshire in the UK as part of a wide-ranging restructuring operation. It was more a move that enabled a troubled company to ward off German corporate law and the German Insolvency Code, while implementing a rescue plan that would satisfy the demands of its financial backers. That the strategy succeeded was good news not only for Schefenacker itself, but also for its car-industry customers.
Underperforming business units depress enterprise values and consume cash that could be better used elsewhere, but it is easy to waste resources on ineffective fixes. Roger Bayly, a Partner in KPMG’s UK Restructuring practice discusses how to spot these problem areas and how to decide what to do.
KPMG's Restructuring practice can help to solve complex problems that may threaten a company's value. Working alongside lenders, stakeholders and all levels of management, our professionals are able to plan and deliver restructuring actions that can provide real improvements to the cash flow, profit & loss and balance sheet.
New duties on trustees and employers with Defined Benefit Schemes will make restructuring more complex. This covers key points for lenders and their concerns (Briefing Sheet)
The Pensions Regulator ("the Regulator") has issued guidance on the matters to consider when corporate transactions requiring clearance, i.e. those which might materially affect the recovery to a pension scheme if the employer became insolvent, are proposed. Failure to consider whether to seek clearance may result in financial contributions to the company's pension scheme being sought not only from parties to the transaction but also from their associates. This could undermine the commercial justification for a transaction or impose an inflexible cash drain. (Lender Briefing - 212717)
Where a pension creditor exists in a distressed situation, other creditors may have to get used to the pension trustees and / or their advisors becoming considerably more assertive. This situation will arise as trustees must ensure that they do not allow the pension scheme to have fewer assets that would support the benefits available to members under the new Pension Protection Fund regime ("the PPF"). (Lender Briefing - 212717)
A welcome decision from the Pensions Regulator may give comfort to lenders and corporate groups in distressed situations. Where circumstances allow, clearance may be available to protect subsidiary companies from Financial Support Directions (FSDs) where the holding company is insolvent, thus allowing viable companies to be subject to share sales. Lenders and corporates can also be reassured that the Regulator is displaying a reasonable and proportionate attitude. (Lender Briefing - 212716)
Where a company alters its security from an existing debenture to factoring or invoice discounting arrangements, this may require negotiation with the pension trustees or clearance from the Pensions Regulator. (Lender Briefing - 300082)
The CVA of Pittards Plc (Lender Briefing/Case Study - 301732)
Much has been written about the powers of the Pensions Regulator (tPR), the safety net provided by the Pension Protection Fund (PPF), and we are becoming familiar with a whole new dictionary of jargon that previously resided soley on the bookshelves of the actuaries. But in all this complexity - what does it all mean? (Article)