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.