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When debt restructuring is inevitable, formulate a strategy to engage with lenders before they impose their own solution, advise Edward Evans, Daniel Cashman and Barry Cahir from Beauchamps' Restructuring team.
What was already an uncertain economic outlook, due to external factors such as a hard Brexit and changes to internal taxation and trade, has been further complicated by the ongoing Covid-19 crisis. Amid such uncertainty, what is certain is that more businesses will now be looking at restructuring debt than may have been predicted at the start of the year.
At the time of writing, up to 30,000 Irish businesses will be coming off payment breaks, following the six-month debt holiday put in place to manage the fallout for businesses due to Covid-19, after the European Banking Authority confirmed its opposition to an extension to the payment breaks.
Survival of the Fittest
Indeed, the Governor of the Central Bank of Ireland, Gabriel Makhlouf, has written to the finance minister suggesting a Darwinian approach, with future support targeted at those businesses with the greatest chance of surviving – making it now a case of survival of the fittest.
For many, the only option may be to look at restructuring. There are currently a number of options out there:
In Association with
• €200m has been made available through Enterprise Ireland for viable but vulnerable firms that need to restructure or transfer their business.
• Microfinance Ireland is offering loans to any business with fewer than 10 employees and an annual turnover of up to €2m that is not in a position to avail of finance from banks and other commercial lending providers.
• The Strategic Banking Corporation of Ireland has a Covid-19 Working Capital Loan Scheme whereby, if approved, a bank is invited to lend on terms that are effectively guaranteed.
• There are various consultancy supports and grants through Local Enterprise Offices, ranging from vouchers for €2,500 to assistance in preparing business continuity measures.
For some though, this will still not be enough and there will of course be insolvencies. For those that are proactive and want to deal with their finances before such a circumstance is forced on them, debt restructuring and an increased focus on turnarounds and informal arrangements with creditors will be key, especially for small and medium-sized enterprises.
Restructuring Preparation
We advise you take the following simple steps to start the process:
• Gather and review all finance facility terms and conditions.
• Identify all security/collateral given for such facilities.
• Identify key covenants that will be breached/may not be met.
• Understand your legal rights/options (force majeure, frustration, notification requirements).
• Formulate a legal strategy to change or delay terms and to negotiate new terms.
Working with your legal and finance advisors, and armed with a clear legal strategy (and a finance one), engage with your current lenders to initiate a review and restructuring of your debt. Recent improvements to company law generally, coupled with recent and anticipated changes to insolvency law in particular, will help in this engagement.
For those that seek timely advice, which Beauchamps are of course happy to give, and are then willing to put that advice into action, they will be well placed to restructure a debt-challenged business before it is forced on them, with undoubtedly harsher terms.
• Edward Evans (pictured) is Corporate and Commercial Partner
• Daniel Cashman is Banking and Finance Partner
• Barry Cahir is Partner in Insolvency & Corporate Restructuring, Litigation & Dispute Resolution
T: +353 1 418 0970
E: e.evans@beauchamps.ie
W: www.beauchamps.ie
