'We won't hit the bottom until things start selling and we won't start selling until the banks are fixed'

NEXT MONTH will see the first anniversary of the appointment of administrators to the family-owned Quinn Insurance Group.

Paul McCann and Michael McAteer of Grant Thornton were appointed to run the business after the Central Bank, acting through the Financial Regulator, told the High Court that Quinn Insurance Group “significantly breached” its solvency ratios.

McAteer has been dealing with examinerships and insolvent companies since the mid-1980s. On a scale of one to 10, with 10 being the most challenging, Mr McAteer puts the Quinn administration “in the eights or nines. It is extremely challenging”.

The business has more than 1,600 employees, is based in a number of locations and operates in two jurisdictions. It is also a regulated industry, which brings its own challenges, he says.

Out of deference to the employees, he will express neither optimism nor pessimism about how the administration is progressing. The appointment of the insolvency experts is only the third such appointment under the 1983 Insurance Act. The two other instances were PMPA and ICI.

McCann’s experience includes being receiver to Zoe Group (Ireland) Limited, examiner to O’Briens Sandwich Bars and liquidator to Flightlease (Ireland) Limited. McAteer’s experience includes examiner to the Lynch Hotel Group, Toni Guy (Ireland) Limited, Golden Discs Limited and Murray Rent-a-Car.

McAteer was appointed to his first corporate rescue job in 1986 and says there are similarities and differences between then and now, the chief difference being the state of the banks.

“The big difference is that in the 1980s there was always a market. No matter what you had, you could sell it.” Back then, he worked on firms involved in steel manufacturing and found he could sell equipment and steel. But now as there is no finance, there is no market to sell to.

“We won’t hit the bottom until things start selling and we won’t start selling until the banks are fixed.” He admits he knew nothing about insurance when he was first appointed to Quinn Insurance but says different businesses have similar structures. A key move for him is to get to know and assess the management team.

McCann agrees. “You work hard to gain their trust, you identify the strong people, you identify where there may be weaknesses and organise them with third-party skill sets.”

A series of small battles can ensue as the insolvency practitioner seeks to gain the trust of the local management, he says.

“We know a company needs to make a profit. We go under the numbers and separate what is profitable and what is loss-making and ask can you fix the loss-making part of it or is it more fundamental than that. If you can’t fix it, you cut it off.”

One of the advantages insolvency practitioners have is that they are not emotionally attached to the business and are often able to clearly see what needs to be done. The administrator role for the insurance sector is about preventing a situation where people who have taken out insurance end up not being covered. Having an insolvent insurer selling products devalues insurance in the market.

So administrators allow a company to trade while it is being restructured. Any shortfall is covered by the fund created by the 2 per cent levy on all insurance. As PMPA showed, an insurer can be in administration for decades.

McAteer says despite the demand for insolvency experts, there has been downward pressure on fees for the past few years.

The courts have been vigilant in relation to accounting and legal fees and the banks, who often pay the fees, have been tendering for the work. The competition, according to McAteer, “is huge”.

In October last, the High Court approved the Grant Thornton fees for the four months to the end of January. Reports suggested the amount was €1.5 million, with legal fees for lawyers McCann FitzGerald in addition to that.

Similar figures were approved earlier in the year for the July, August and September period.

The October decision followed a querying of the fees by the president of the High Court, Mr Justice Nicholas Kearns, who asked why they were not falling. Usually, such work peaks at the outset. The court was told that trying to sell the Quinn business accounted for the size of the fees charged.