Editor: Please tell our readers about your practice.
Horspool: I am a partner in the firm's restructuring group in London. The formal processes here are very different from Chapter 11, which is a debtor in possession proceeding. Here, formal proceedings are run by accountants acting as liquidators or administrators. We tend not to act for them, but mostly to act for companies engaged in out of court restructurings prior to them ending up in formal proceedings. We also act for creditors of those companies both in out-of-court restructurings and in-court restructurings. With the greater emphasis on out-of-court restructurings, it's a slightly different practice from Weil's practice in the U.S., although it covers broadly the same area. Our restructuring practice focuses primarily on the UK; but we also coordinate the international aspects of U.S. restructurings.
The strength of the London Office historically has been in the corporate/private equity space. Mike Francies and Marco Compagnoni together with other partners here, have established the firm as one of the leading private equity shops in London. Private equity clients are the core of our existing client base.
Editor: I gather that the inclusion of a restructuring practice in larger firms has become more common.
Horspool: Ten years ago there were no restructurings as such in the UK - you either had formal court processes or you had what used to be called "London Approach"- bank workouts involving major financial institutions, typically dependent on unanimity being achieved. The debt being worked out was held by a relatively small range of banks making it far easier to achieve unanimity between them. Now you have a very different population of creditors. In the UK and across Europe, we have had a great increase in publicly issued debt towards the end of the 1990s. There is now a lot more secondary trading of debt including bank debt. Also, original issuance of bank debt to hedge-funds and CLOs has increased dramatically. It is often the U.S. firms that have led the way in developing the structures and techniques required to implement restructurings involving this very different creditor population and all the major UK firms now have restructuring groups as well.
Editor: When do clients come to you and say we need your help in restructuring?
Horspool: It is obviously better to get advice as early as possible. Many businesses are not only over levered, but desperately short of liquidity. We had a big private equity boom here - lots of highly leveraged buyouts in what you would characterize as the mid-cap sector. This has resulted in very stressed capital structures. But on top of that, many businesses are simply running out of ready cash to fund operation. This issue is driven by broader economic and commercial factors relating particularly to those businesses but also by the availability of credit in the market.
Editor: I gather that in the UK, the issue of whether a company is a "going concern" must be faced. What are the implications for directors?
Horspool: The directors have a duty, once there is no reasonable prospect of avoiding an insolvent liquidation, to take steps to maximize recoveries for creditors and other stakeholders. The way this works is that a company facing future liquidity problems can continue to trade if it can conclude that there is a reasonable prospect of getting the funds it needs - for instance, if it is continuing discussions with a prospective provider of liquidity. The moment that those discussions fall apart, it must maximize value and recovery for creditors - that usually involves filing for administration or liquidation.
Editor: So the accountants can trigger an insolvency liquidation?
Horspool: Yes, if a company is at the end of an annual accounting period. Auditors need to be able to prepare accounts on a going concern basis, which usually means they need to be confident that the company can continue to trade for the coming 12 months. If the company can't provide the accountants with the assurances they need to deliver a clean opinion, the business can fall apart pretty quickly - qualified accounts for a company mean that customers and suppliers won't do business with it and may mean that default under the covenants of its bank and other contracts are triggered.
Published January 1, 2009.
