1. Company doctors? Working together in Europe today Stephen J Taylor TMA Conference London 14 th October 2005

2. Company Doctors? So who am I? So who am I? Partner at PwC until recently Partner at PwC until recently Led the Continental European practice Led the Continental European practice Worked with debtors as well as creditors Worked with debtors as well as creditors Advised governments and international institutions Advised governments and international institutions First to “use” the EU insolvency Regulation First to “use” the EU insolvency Regulation Started life as a concert promoter Started life as a concert promoter Now fishing Now fishing

3. Company Doctors? Agenda: Agenda: Drivers for change in approach to restructuring Drivers for change in approach to restructuring The role and focus of an insolvency practitioner The role and focus of an insolvency practitioner Some new techniques Some new techniques A new approach A new approach

4. Company Doctors? Key Points and Conclusions Key Points and Conclusions There is a real need for Company Doctors – CROs and IPs There is a real need for Company Doctors – CROs and IPs Insolvency laws are moving towards rehabilitation, Chapter 11 style Insolvency laws are moving towards rehabilitation, Chapter 11 style New techniques have been developed New techniques have been developed A new paradigm is needed in which CROs and IPs work together as a team A new paradigm is needed in which CROs and IPs work together as a team

5. Company Doctors? Drivers for change (i) Drivers for change (i) Businesses and economies of Europe need repairing: Businesses and economies of Europe need repairing: Germany, Italy, France Germany, Italy, France Automotive, Textiles, Retail Automotive, Textiles, Retail Little popular support for radical change Little popular support for radical change US providers of finance, often through secondary channels US providers of finance, often through secondary channels European Banks learning from US/Asian techniques European Banks learning from US/Asian techniques

6. Company Doctors? Drivers for change (ii) Drivers for change (ii) Avoidance of insolvency Avoidance of insolvency Parental support Parental support Institutional support for businesses and/or CROs Institutional support for businesses and/or CROs Only when things are not too bad Only when things are not too bad Partial amputation Partial amputation US abandoning European subsidiaries US abandoning European subsidiaries

7. Company Doctors? Drivers for change (iii) Drivers for change (iii) Old insolvency laws: based on punishment and probate Old insolvency laws: based on punishment and probate Focussed on traders and small businesses Focussed on traders and small businesses Unsuitable for modern businesses: Unsuitable for modern businesses: IT IT Service Companies Service Companies Complex Group Structures Complex Group Structures Issues around supply chain management Issues around supply chain management

8. Company doctors? Drivers for change (iv) Drivers for change (iv) Growing awareness not delivering satisfaction to most stakeholders including government Growing awareness not delivering satisfaction to most stakeholders including government Independent and public rating of effectiveness of insolvency process Independent and public rating of effectiveness of insolvency process Lisbon 2000 encouraging entrepreneurship but recognising that entrepreneurs need support Lisbon 2000 encouraging entrepreneurship but recognising that entrepreneurs need support Brussels: Blocking state aid Brussels: Blocking state aid

9. Company Doctors? Focus of insolvency practitioners Focus of insolvency practitioners UK: Accounting groups UK: Accounting groups Europe: Small legal practices Europe: Small legal practices - risk averse and process driven Exacerbated by licensing (UK) and court (European) attitudes Exacerbated by licensing (UK) and court (European) attitudes Concerns re personal (firm) liability Concerns re personal (firm) liability

10. Company Doctors? Focus of insolvency practitioners (ii) Focus of insolvency practitioners (ii) Primary channel to market is the banks Primary channel to market is the banks “get the money back” “get the money back” Suppliers covered by trade insurance Suppliers covered by trade insurance Sell the assets as quickly as possible Sell the assets as quickly as possible Need to blame someone Need to blame someone Find the Fraud Find the Fraud The IP is king. No room for a pretender The IP is king. No room for a pretender

11. Company Doctors? Some techniques used by the enlightened Some techniques used by the enlightened IPs converting into CROs IPs converting into CROs Firms recruiting CROs Firms recruiting CROs Imaginative use of insolvency law eg Imaginative use of insolvency law eg Prepacks Prepacks Forum Shopping Forum Shopping

12. Company Doctors? Forum shopping Forum shopping EU Regulation 1364/2000 EU Regulation 1364/2000 Company should be liquidated where its CoMI is Company should be liquidated where its CoMI is Intended to avoid forum shopping but made it worse Intended to avoid forum shopping but made it worse Used to find a friendly regime: Used to find a friendly regime: More flexible, especially to allow prepacks and high levels of discretion (eg Parmalat, Rover) More flexible, especially to allow prepacks and high levels of discretion (eg Parmalat, Rover) Preselection of IPs (Collins and Aikman) Preselection of IPs (Collins and Aikman) Mitigate liability of directors Mitigate liability of directors

13. Company Doctors? Towards a new approach Towards a new approach US: a rescued business is worth more (to all stakeholders) than a liquidated one US: a rescued business is worth more (to all stakeholders) than a liquidated one IPs can help to rescue businesses by: IPs can help to rescue businesses by: Freezing creditor action Freezing creditor action Breaking onerous contracts Breaking onerous contracts Getting assets into someone elses hands Getting assets into someone elses hands Fixing balance sheets Fixing balance sheets This is not always enough This is not always enough

14. Company Doctors? Towards a new approach Towards a new approach IPs cannot rescue a business alone IPs cannot rescue a business alone IPs need to work with CROs with clearly established roles: IPs need to work with CROs with clearly established roles: Problems if the IP insists on the lead role Problems if the IP insists on the lead role Problems if the CRO undermines the IP Problems if the CRO undermines the IP Both are company doctors but doctors bring different specialities to the theatre Both are company doctors but doctors bring different specialities to the theatre

15. Company Doctors? CRO - the surgeon CRO - the surgeon Clear view of what needs to done Clear view of what needs to done Remove or alleviate the problem Remove or alleviate the problem Consider and prepare patient for longer term Consider and prepare patient for longer term Blamed if Blamed if Cuts a vital organ or artery Cuts a vital organ or artery Performs the wrong operation Performs the wrong operation Cuts off the wrong leg Cuts off the wrong leg

16. Company Doctors? IP is the anaesthetist IP is the anaesthetist Is the patient strong enough to survive the anaesthetic Is the patient strong enough to survive the anaesthetic How much anaesthetic should be applied: local or general. Appropriate for the length of the operation How much anaesthetic should be applied: local or general. Appropriate for the length of the operation Monitor vital functions during the operation Monitor vital functions during the operation Blamed if: Blamed if: Wrong anaesthetic used Wrong anaesthetic used Patient deprived of oxygen (funding?) Patient deprived of oxygen (funding?)

17. Company Doctors? “Anaesthetists.. Drug their trusting subjects through somewhat ardous surgical procedures. They possess a wry if somewhat macabre sense of humour” “Anaesthetists.. Drug their trusting subjects through somewhat ardous surgical procedures. They possess a wry if somewhat macabre sense of humour” Surgeons.. Should be able to tackle anything they can get their knife into. Any size of brain is permitted at a push but you will be expected to have the same attacking instinct as the Real Madrid forward line and a disturbing if not morbid interest in finding out how things work” Surgeons.. Should be able to tackle anything they can get their knife into. Any size of brain is permitted at a push but you will be expected to have the same attacking instinct as the Real Madrid forward line and a disturbing if not morbid interest in finding out how things work” ……Bluff your way in Doctoring

18. Conclusions Insolvency is moving out the dark ages Insolvency is moving out the dark ages.. So are some IPs.. So are some IPs The CRO is a vital part of the process and must be allowed to be involved The CRO is a vital part of the process and must be allowed to be involved There is little point putting a patient under the anaesthetic if there is no repair operation There is little point putting a patient under the anaesthetic if there is no repair operation Rescues from insolvency need teamwork between CROs and IPs Rescues from insolvency need teamwork between CROs and IPs