Appointing a chief restructuring officer lets an indebted firm's management focus on the day-to-day business, writes DAMIAN RINGWOOD.

WITH MANY companies facing difficult trading conditions, it is likely that a number of them will go under.

We have seen a three-fold increase in business failures in the past year, with many unable to recover having gone into examinership or receivership.

This scenario can in many cases be prevented by the major creditor (usually the banks or potentially the National Asset Management Agency) and the company working together on a solution.

This is done by the creditor employing a chief restructuring officer, with executive powers, to work with the company while reporting back directly to the major creditors.

Typically, this person would have a restructuring track record and know the sector. This would allow the existing management to focus on the day-to-day running of the company.

To fully understand the merits of this proposal, it is important to define what a chief restructuring officer is and why a company should use one. It is also important to understand the advantages to banks in engaging a chief restructuring officer.

What is a chief restructuring officer?

In the past few years, it has become common for turnaround professionals to be employed as chief restructuring officers rather than as consultants. So what does a chief restructuring officer do and what differentiates this role? Some key pointers are:

- A chief restructuring officer has primary responsibility for the restructuring of the company's balance sheet;

- The incumbent managers run the firm's operations, while the chief restructuring officer focuses on what must be done to satisfy its creditors;

- The formal title is necessary because if a turnaround specialist is brought in merely as an outside consultant, he may not have enough power to do the job right.

A chief restructuring officer is hired in part to satisfy the firm's creditors, who also typically have a voice in his/her selection;

- Creditors typically support the engagement of a chief restructuring officer and in many cases encourage or even demand such engagement to ensure access to information, credibility of reporting and an outside view of management that focuses on creditor expectations rather than the day-to-day operations of the company.

Why use a chief restructuring officer?

There are a number of reasons for engaging a chief restructuring officer:

- A chief restructuring officer has greater authority to direct a reorganisation process than a turnaround consultant and greater independence over existing management;

- The chief restructuring officer is vested with executive decision-making powers and direct access to the debtor's governing body.

Direct access to the chief restructuring officer is given to the creditor constituency responsible for the chief restructuring officer's appointment.

The chief restructuring officer has the authority to meet the creditor constituency privately and otherwise deal with that creditor constituency as to the administration and formulation of a reorganisation plan;

- In essence, a chief restructuring officer takes away the decision-making power of the debtor in possession and transfers control of the administration of a reorganisation to the creditors;

- At a minimum, the retention of a chief restructuring officer puts a greater distance between the turnaround professional and the debtor's shareholders, which in turn makes it more difficult for shareholders to disrupt the chief restructuring officer's efforts in the reorganisation process.

The profile of a chief restructuring officer

When finding a suitable chief restructuring officer, it is critical to specify and agree the profile sought. A typical profile would include the following fundamental elements:

- Hands-on expertise and experience in the debtor's industry and in restructuring/turnaround;

- An ability to interact with and bring together the sectors of a company's business and its various stakeholders;

- An ability to establish control quickly through trust and credibility;

- An ability to diagnose issues quickly and build a consensus with stakeholders for implementation;

- A track record of implementation in a turnaround environment utilising a broad skillset (not just financial);

- A strong tendency towards action;

- Proven judgment and decision-making skills;

- Proven leadership capabilities.

Advantages to banks in engaging a chief restructuring officer

Typically, banks are the major creditor and have a dual purpose of securing repayments while also securing the medium- to long-term viability and sustainability of the company.

There are six significant advantages to banks in engaging a chief restructuring officer:

1. Securing debts and banking relationship

By utilising this solution and engaging a chief restructuring officer who meets the specification outlined above, there is a high probability of securing the bank's loans and its longer-term banking relationship. This is the dual goal and outcome sought.

2. A cost-efficient solution

This solution is not as costly as an examiner or receiver. A chief restructuring officer may have previous industry experience and may not require as much time to become familiar with the debtor's business. Accordingly, the chief restructuring officer is unlikely to need new or additional professionals such as lawyers, financial advisers, etc and is more likely to work with current management rather than replacing it.

3. Avoids bad public relations

The appointment of a chief restructuring officer is preferable to debtors and creditors than the more drastic remedy of examinership, receivership or liquidation.

It is a proactive step that seeks to benefit both parties and their wider stakeholders.

4. Statement of support to business

A chief restructuring officer with industry and/or turnaround experience will provide assurance to stakeholders that the debtor is serious about its restructuring and not looking merely to administer the estate towards liquidation.

5. Allows for day-to-day business focus while restructuring

The chief restructuring officer works with the management team and allows the team to focus their efforts on day-to-day operations.

Given that the trading environment is difficult, it is critical that management can focus fully on customers and operations while the chief restructuring officer focuses on the restructuring.

6. Control and transparency

This allows the bank to have full control and transparency with ongoing monitoring. This provides assurances to the bank as to progress and allows input from the bank and a more complete understanding of the true situation and issues faced by the company.

By utilising the skills of chief restructuring officers, banks and Nama can help maximise their return from major creditors and create a sustainable ongoing business for the creditor organisation. To quote serial entrepreneur Tim Blixseth: "Many great ideas go unexecuted, and many great executioners are without ideas. One without the other is worthless."

Damian Ringwood is a partner with Amrop Strategis