BT ILLUSTRATION: BILLY KER
"Everything we do is to preserve and enhance value for different stakeholders. That process will require recognition of the various rights of the different stakeholders. It sometimes needs to balance various competing interests." - Baker Tilly Reid principal Tim Reid.The way back to black for financially struggling listed companies is more often than not a long and arduous one.
Industry professionals feel it is not so much that instances of wrongdoing are on the rise, but rather that regulators are adopting a more active stance and the regulatory regime has become stricter over the years. An SGX RegCo spokesperson offered this dismal statistic: Of the total 63 companies that have been suspended for 12 months or more, only eight eventually resumed trading, which works out to about 13 per cent.
"It does take a while before things settle down and the expectations get closer and closer and more aligned," says Mr Ong."It's a process which naturally starts far apart and takes time and effort to close." "In various emerging markets, the concept of a turnaround or restructuring is foreign, because the legal framework and the culture in those markets do not facilitate this. This may then result in a binary situation and makes it challenging for distressed corporates and creditors who want to see a positive and meaningful restructuring."
The recently revamped Companies Act now allows an automatic moratorium of 30 days to take place immediately upon filing of an application. This gives the company and its financial advisor time to further engage in discussions with its creditors, and to come up with a viable restructuring proposal. Liquidation is the final resort, tantamount to corporate bankruptcy. Assets are sold in fire sales, and money collected to repay creditors. The process can be lengthy, especially if there are lawsuits involved, or if the debtor company has many layers of subsidiaries, each of whom needs to be liquidated to repay its own group of creditors before the surplus can flow upwards to the parent.
This puts undue pressure on the judicial manager who has to persuade industry counterparties not to terminate crucial supply and business contracts. Others, like Mr Ong, beg to differ, pointing out that many of the companies undergoing judicial management are showing active restructuring. Swiber, for example, last month incorporated a vessel charterer in Mexico with a 49 per cent stake. It is also working towards a rescue plan by New York-listed Seaspan Corp. Mr Ong does not believe that the offshore and marine group will end up in liquidation.
Clearly, white knights in the corporate world are not nearly as chivalrous as in fairy tales. They're not always in shining armour, as the failed rescue of Hyflux by SM Investments can attest to. At the end of the day, it is self-interest rather than chivalry that motivates their rescue. At the same time, successful RTOs also require proper due diligence by middlemen, consultants and advisers, as opposed to those who just want to push a deal through.
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