Hospitality businesses have always had to deal with seasonal cycles and economic cycles. Coupled with unexpected events like Covid 19 it can be difficult to adapt and from time to time viable businesses will need structural intervention and assistance at balance sheet level.

Key to this is identifying early warning signs of distress in liquidity and to prepare early. Regular review (see Insights) of the business facilitates optimum remediating actions. It is imperative that where an insolvency event horizon is a possibility that all stakeholders including lenders are involved to ensure that a solution is quickly found and agreed.

Restructuring options can take a number of forms and choosing the most appropriate option is key to a permanent solution. At Moore we have been involved in a range of these which have successfully resolved our client’s financial issues.

Early Steps

The important early steps are to complete the insight process and establish whether the business is viable or cannot be saved. If viable the most important next step is communication with key creditors. Which over option you take it will require their involvement to maintain viability and to work through a plan. This potentially avoids entrenched positions being taken by impacted creditors. Helping them to understand how they are affected and how working with you is the best outcome for all gives important breathing space for a plan to be carried out.

Restructuring Options

Restructuring options move up in a scale of formality from the informal scheme of arrangement to full examinership. They depend on the severity of the liquidity issues. The options below are bespoke to the level of distress and confidence in viability.

 

Debt settlement with loan funds

Where there is no possibility of full pay back loan funds will negotiate settlements where they are receiving at least the value of the assets. Moore has been particularly successful in these arrangements and arranges funding to do so.
 

Bank debt restructure and temporary working capital

Moore has used this method a number of times during the pandemic whereby government restrictions and support necessitated the requirement for payment holidays and additional working capital. Once viability is proven, this works particularly well as the solution is focused on one key creditor.

Formal scheme of arrangement

Moore has carried out a number of formal schemes across a number of sectors. They require the involvement of all creditors but crucially do not require the consent of all creditors. Creditors are divided into classes such as secured, unsecured and preferential creditors such as the revenue. A business plan, statement of affairs and proposal is produced for all classes of creditor and members showing that the business is viable and that creditors and members will benefit more from the arrangement than in a liquidation. The arrangement involves a compromise of one or more creditor classes’ positions and potentially a rearrangement of capital position among members. Each gets the opportunity to vote at creditor and member meetings for or against the proposal and success requires a special majority (75%) of each class.

The scheme is formally approved in court so that it is binding on all parties.

Schemes of Arrangement are relatively less expensive than the more formal approach of examinership. For more detail please click on the following link 

A related option to this is called SCARP which is a small company administrative rescue process. This was recently passed into legislation. It is a speedier and more streamlined scheme of arrangement process, requiring a lower threshold of creditor and the full explanation of process and eligibility can be found on this link.
 
This appears to be an ideal solution to issues caused by the recent pandemic.
 
Examinership is a 70 - 100 day process through the High Court where there is an imminent threat to the survival of the company and the prospect of significant unemployment but where there is reasonable prospect of survival under court protection. Schemes of arrangement on their own could be done in half that time, and involves one visit to the Circuit Court to preserve the outcome.
 
It requires an initial petition and independent accountant’s report to the court confirming viability and seeking the appointment of an interim examiner. All key creditors must be notified. If appointed the examiner assists the directors of the company to draft a plan for viability and scheme of arrangement. He has 100 days to deliver an agreement amongst creditors and members as to the details of the rescue plan and seek necessary funding. During the 100 days there are set milestones for negotiation with creditors, circulate the scheme of arrangement, hold meetings and report as required to the court.

For a more detailed explanation please click on the following link. 

Examples

1. Pub Group (A) negotiated a debt settlement with 50% write off of the debt along with fresh bank funding
2. Pub Group (B) negotiated a 60% debt write off which involved the divestment of some assets and fresh finance for others.
3. Pub Group (C ) restructure of bank debts,  interest only period and fresh working capital (Covid)
4. Hotel Group restructure of bank debts, interest only period and fresh working capital (Covid)
5. Scheme of arrangement (informal) whereby legacy creditors accepted a 70% write down and fresh funding was secured.
6. Examinership (manufacturing, energy) which involved new debt, compromise of several classes of creditor and restructure of ownership.