Managing recovery in the licensed trade

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Value preservation, putting cash back into the business - Jason Sheehy of the P&A Partnership explains how pubs under pressure can help themselves.

Off-trade

5 July 2013

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In this article we seek to de-mystify the Examinership process and to show how it can help owner managers and family businesses to manage the restructuring of their business in a cost-effective way.

The Small and Medium Enterprise sector in Ireland has long been a vital source of employment, tax revenue to the State and wealth generation for owner-managed and family-run businesses. Like all sectors of the Irish economy the SME sector has faced significant challenges in recent times. These challenges have arisen from the downturn in the economy in general, lack of disposable income and spending power, downsizing of capital budgets, customer corporate failures, loss of contracts and lack of liquidity to mention just a few.

As a result business owners that have in some case spent generations building their businesses and providing an income for their families are now facing uncertain futures and in some cases battling for survival. This is no more evident than in the hospitality and licensed trade sectors where many of these business have been family-owned for generations, where the family or owner is deeply involved in the day-to-day running of the business, spending long hours covering all areas from stock control, staff rostering and planning entertainment events to marketing and advertising.

Then, on top of this, the owner has the added pressure of dealing with the day-to-day finances of the business and the complications that come with this.

But the ability to be able to restructure the business is available through Examinership. Unlike the US where Chapter 11 is commonplace for business restructuring, the process is not used in Ireland as widely as it could be.

How does an examiner engage with the publican?
It’s important to understand that the Examiner does not run the business on a day-to-day basis. This is different to a Receiver who will take over the day-to-day running of the business in most cases. Under Examinership the owner continues to operate the business during the 100-day period of the Examinership therefore maintaining the expertise needed to preserve the value in the business.

The Examiner will usually sit down with the owner once appointed and work through the key recommendations set out to the Court in the independent accountants report when Court protection was granted.

These matters would normally involve reducing the cost base of the business which could include meetings with staff regarding negotiating lease terms with landlords, meeting with key suppliers and working with the owner on options available to restructure the finances and balance sheet of the business.

In effect the focus of the owner is to maintain the day-to-day operation of the business while the Examiner focuses on the key elements of the financial restructuring. As part of this the Examiner may also speak to possible investors that might wish to invest or reinvest in a restructured business.

The Examiner is available to help the owner deal with any problems that may occur during the 100-day period. The 100 days is used to put a plan in place to help restructure the business and during the period no creditor can take any action against the company. They must wait for the restructuring plan to be sent to them. They then get a chance to vote on it.

Ultimately the plan is brought back to the court by the Examiner and the court has the power to approve the plan; once it is approved by the court the plan will become binding on all the creditors even if the creditors did not vote for it. The creditors include banks, Revenue, trade, leasing, landlords and connected parties. Plans usually entail part payments being made to creditors on specific dates by the company in settlement of their debts.

Once the court approves the plan the company will exit Examinership and the Examiner will cease to act.

An experienced Examiner will guide the publican through the process and ensure solutions are crafted to offer the best chances of restructuring the business and protecting the years of hard work by the owners.

Examinership – Did you realise?

An onerous lease with unsustainable terms can be restructured
Onerous contracts can be repudiated
Secured lenders’ debt can be restructured
New funding can be sourced
Most companies tend to be cash-positive during the Examinership period
Invoice discounting can be used to help fund working capital
Goods/assets cannot be taken back during the period
Amounts due to trade creditors can be compromised
A creditor can apply to have an Examiner appointed
The process has been used by the Irish Government in the past
It has happened that a company has been in Examinership more than once
It is possible to separate poor property plays from fundamentally sound trading businesses
Pre-planning greatly enhances the prospects of ensuring a positive outcome
The process doesn’t have to take 100 days
The process is not cost-prohibitive
In practice, creditors tend to support the business

Key drivers to protect value

Identify the level of core business that can be sustained
Put in place a cost-reduction plan for all overheads
Review all staffing levels and roistering in addition to pay rates
Address rent levels with all landlords
Prepare a marketing and promotion campaign; plan it, implement it and monitor it
Prepare a detailed cashflow and identify what level of debt can be serviced
Engage with the lenders early with a realistic plan
Seek a payment plan with key creditors and Revenue if needed
Identify other potential sources of funding from inside the business and outside – sale of non-core assets
Do you have assets that are fully depreciated that specialised lenders might re-finance
Is it possible to restructure the balance sheet?
Vital to keep the owners driving the restructuring of the businesses on a day-to-day basis as it’s unlikely that the expertise, knowledge and passion can be replaced with new or outside management. The learning curves normally needed and cost associated usually don’t justify replacing owners
Ensure all competitors are operating on a level playing pitch.

Jason Sheehy – The P & A Partnership
Jason Sheehy is a partner of the UK-based P&A Partnership which launched its Dublin Office in May last year to offer its unique range of turnaround services to its clients and financial institutions based in Ireland. Jason is experienced in an array of turnaround, business rescue and insolvency matters. The P&A Partnership acts for all clearing banks, factors, discounters and asset-based lenders. Its clients include multinational PLCs, SMEs, financial institutions, accountants, solicitors and business advisors. As the partnership works only in the field of business rescue and insolvency, it not only promises dedicated expertise but can also assure its professional clients that they pose no competition to their own business base.
P & A Ireland, Denshaw House, 121 – 120 Baggot Street Lower, Dublin 2?

e-mail: JasonSheehy@thepandapartnership.com

Tel: +353 (0)1 659 9477

Web: www.pandapartnership.ie