Not for the faint-hearted

PUBLISHED : Saturday, 07 November, 2009, 12:00am
UPDATED : Saturday, 07 November, 2009, 12:00am

Encounters with gangsters are not part of normal business for a restructuring practitioner such as Galaxy Chan, director of financial advisory services at KPMG. But at a meeting with a mainland company's directors during its recent provisional liquidation, Chan was confronted by hoodlums who jumped out of a van and demanded money, claiming the company was indebted to them.

'According to the balance sheet, the company had bank and trade creditors. No other parties were on its books,' Chan said. 'It was like a movie scene. We were unaware that the company had this kind of debt. All we could do was tell the gangsters we were appointed by the court. We registered their claim, managed to calm them down, got their contact details and they left without further confrontation. In the end, they didn't get their money as they were found to not have valid claims.'

Chan and Tiffany Wong, a fellow director in KPMG's restructuring services practice, transferred to the restructuring division from the firm's audit department, which they had joined after graduation. They are two of only a handful of women in senior positions in insolvency practice in Hong Kong.

Companies restructure when they face problems such as cash flow shortages or being unable to meet debts. One of the social benefits of restructuring over liquidation is the possibility of saving jobs, according to Wong.

'The result of a company bankruptcy or liquidation will be the termination of its employees. As insolvency practitioners, we prefer to try to save jobs and the company, too, if it has a viable business. So the first thing we do when we're appointed is to look at a company's financial position and then recommend a course of action as to whether it can be saved through restructuring,' Wong said.

While there are no benchmarks to follow to establish whether a company is financially viable, there are key elements. Most important is to ascertain whether the company has sufficient cash in the bank or liquid assets that can be realised quickly in order to pay salaries and essential suppliers.

'Without cash, the company can't pay its employees or suppliers. In this case, the bank or other lenders may decide that even though that company has a viable business, they will not extend a short-term working capital loan, which would keep the business going for three to six months so that the provisional liquidators or company management could find a white knight or an investor to save the business,' Chan said.

Insolvency practitioners also look at where operations can be streamlined. Employees not needed for current production may be dismissed, for example, and debts examined to see how much of the money owed can be quickly recovered.

'There are other initiatives that we can recommend to management or directors, such as whether they would be prepared to offer customers a cash discount in order to speed up recovery by turning existing stock quickly into cash,' Wong said. 'We also look at whether there are any non-core assets not essential to the company's operation that it can dispose of quickly just to unlock cash. Cash is king when a company is in distress.'

The success of a restructuring depends very much on individual company circumstances and on the appetite of potential buyers. While both Chan and Wong have worked on cases where companies have been saved and buyers found, they have also seen companies put into liquidation where there simply is no other option.

'I feel sad for a company's employees in these cases because it can happen very fast, within one or two days, and having to tell people that they are to be made redundant is never easy,' Chan said.

Nevertheless, this can be part of an insolvency practitioner's role, so the ability to stay emotionally detached and focused on the job is critical. A restructuring can take as little as four months or roll into years if it is complex. It can involve discussions and negotiations with onshore and offshore creditors including employees, suppliers and banks in several jurisdictions.

'The key is to balance the interests of each different creditor group, some of whom may be unhappy with their proposed payments, and to try and keep everybody happy. This can make the restructuring process very problematic,' Wong said.

She said that her most challenging assignment was the restructuring of luxury goods company EganaGoldpfeil in 2007. She worked on a financial review to establish the recoverability of its assets and cash management and acted as a liaison between the company, its lawyers and the steering committee of some 50 banks in Hong Kong and Europe.

Chan worked on the recent solvency review of Lehman Brothers' entities in the Asia-Pacific region. 'We had to finish the review within two weeks and worked hard to complete it successfully on time,' she said.

Restructuring can take time because there are a lot of documents to be prepared, meetings to be held, court approvals to be obtained and hearing dates to be set.

The manual labour - the packing and unpacking of company documents in a client's office when they enter provisional liquidation - and having to face unhappy people on a daily basis can be off-putting to young accountants considering working in restructuring.

Wong said that KPMG was trying to recruit both new recruits and experienced mid-career level accountants, but that the work was not for everyone.

'The routine and manual work can be hard at the beginning, but if you stick at it for a couple of years and gradually build up your experience, I think it is more interesting than audit,' she said. 'Audit has certain procedures that must be followed, but in restructuring different issues arise every day that have to be handled with alternative methods. It is always challenging.'

Crisis management

Educational requirements
University graduates with accounting, economics, general business or legal degrees

Work experience
For mid-level joiners, people with hands-on experience in the restructuring field

Personal traits or characteristics that suit the work

- Ability to adapt to new environments and to learn new skills quickly

- Able to work under pressure

- Willingness to travel to and sometimes be stationed at remote locations or at locations where the set-up may be chaotic or less than ideal

- Able to take the initiative to learn and to be aware of changes in the economic environment, regulations and laws

- Have an analytical mind and be good at writing reports

- Be assertive and have the emotional maturity necessary to be able to handle difficult situations and people