Insolvency and restructuring lawyers are often busy when a company or the economy is going through bad times. Justin Whealing reports on an area of the law reliant on bad news
THE UPSIDE OF DOWN: Driven by corporate distress, insolvency and restructuring lawyers fight to focus on the legal perspective for their clients, amid noisy public commentary
Undertakers, doctors, tax collectors, school teachers and lawyers. These are five professions where there will always be a strong demand for services, regardless of which way the economic wind is blowing.
It is often said, and often by lawyers themselves, that lawyers will always be needed in good times and bad. That is true, but some lawyers exclusively practice in areas where their work is driven by some form of corporate distress.
"The most disappointing day of my professional life was the day the main line sale of Ansett collapsed," says Corrs Chambers Westgarth partner John Stragalinos. "We had worked so hard, and you look at how hard the Ansett people worked in trying to save the airline and save thousands of jobs.
"So much effort was put into it and unfortunately the sale fell over and that is why, for me, it remains the most disappointing day of my professional life."
Before joining Corrs in 2002, Stragalinos was at Andersen Legal where he worked for the administrators of Ansett, Mark Korda and Mark Mentha. This was a role he continued after he transferred across to Corrs.
Due to the nature of insolvency and restructuring work, much of it is done in the glare of the public eye.
Henry Davis York is acknowledged as the leading boutique insolvency and restructuring firm in Australia. It has had a role in many recent high-profile insolvency matters including ABC Learning, Centro, the Allco Finance Group and Babcock & Brown.
"The most disappointing day of my professional life was the day the main line sale of Ansett collapsed"
John Stragalinos, partner, Corrs Chambers Westgarth
The head of the firm's banking, insolvency and restructuring practice, Jason Opperman, says that you can never totally divorce the public commentary from your role as a trusted legal advisor.
"The pressure that is placed on those clients from the public perception perspective is really important to us and always top of mind, but our key priority is to represent our clients' interests from a legal perspective, and getting that job done is of a paramount concern."
Like Opperman, Stragalinos also is not immune to how public commentary can affect a client's image. In addition to the Ansett liquidation, he has acted on complex and much talked about insolvency matters such as advising the liquidators of the Timbercorp group of companies and the bank syndicate on the restructure and refinance of the Allco Finance Group.
However, he says that when "you are in the middle of it all, you are too busy to notice the press coverage given to certain matters", and that for the lawyers involved, the pressure on the desired outcome is not driven from the press coverage or any emotional or public debate an insolvency matter might generate, but rather, the pressure comes from trying to get the best possible result for your client.
"With those types of situations, the pressure is put on you to find a solution," he says. "With the Ansett matter, the company had around 16,000 employees, and one of the main objectives for my client, once we knew the airline couldn't be saved, was to deliver the best possible return for employees with regard to their entitlements.
"The first priority was trying to deliver a high return to all stakeholders."
The GFC isn't over for insolvency lawyers
Henry Davis York did very well out of the global financial crisis (GFC).
The firm increased its revenue in 2008-09 to $85 million, a 15 per cent increase on the previous period, with much of that growth fuelled by the increase in insolvency and restructuring work as a result of the GFC.
With legal wrangling and restructuring work often continuing for years after a business collapse, Opperman says that there is still a lot of work that his form is doing that emanated out of the GFC.
"Some of the larger and more complex matters that did emanate out for the GFC continues to provide strong workflows in the restructuring space," he says.
"It would be too early to predict a rash of forced capital raisings"
Stuart Byrne, national head, equity capital markets group, Clayton Utz
Work related too many of the big corporate collapses during that period, such as Centro and ABC Learning, are still providing Henry Davis York as well as other firms with a steady stream of work.
DLA Piper banking, insolvency and restructuring partner Scott Harris has a client base that includes Westpac, the National bank of California and PricewaterhouseCoopers.
He says that while he is still doing work that has its genesis from the GFC, his workload is "a bit of a mix" of the old and the new.
"There is still hangover work from those large corporate collapses of a couple of years ago, particularly with regard to class actions where shareholders have got together and initiated claims in relation to the circumstances in which they invested in the company," he says.
Harris says that one of the lessons learned from the GFC is that banks and financial institutions give ample time to companies to pay back debt and are more actively monitoring their investments. He believes that is one of the reasons why we don't the same numbers of large insolvency matters at the moment, with fresh work for administrators and lawyers coming from a wider variety of sources, including from smaller companies.
"Where there is a flow of work at the moment is in the small and medium sized enterprise (SME) market," he says. "Many of these companies have either been in distress for some time, or have been on watch by the banks or given greater forbearance, and it is obviously in everyone's interest to try and work through some of these areas of exposure, rather than taking a more aggressive line to realising their security."
With the banks more inclined than in the past to sit on their hands, there has been a growth in the amounts of restructuring work for lawyers brought in by administrators before insolvency beckons.
"It is quite a different situation to what we have seen previously," says Opperman. "SME owners are hanging onto until the 11th hour for rescue packages, and if that doesn't eventuate, they frequently opt for voluntary administration, bearing in mind their obligations to directors and the duties they have in respect to insolvent trading," he says.
"Understandably, directors want to avoid insolvency and to preserve the value of their assets as much a possible. But, insolvent trading is top of mind for many directors, and they find themselves with little alternative but to appoint an administrator
"Where there is a flow of work at the moment is in the small and medium sized enterprise (SME) market"
Scott Harris, partner, DLA Piper
Stralaginos says that the pressure being felt by businesses in the SME space is providing work for insolvency and restructuring lawyers, which is been aided and abetted by more active market regulation. Similar to Harris, he also acknowledges the greater patience, within limits, of the banks. However, he believes a more aggressive stance taken by government agencies is putting extra pressure on companies in the SME space.
"The Australian Tax Office, during the GFC, was very supportive of businesses and provided time for companies to pay tax," he says. "This year, the ATO has increased its pressure on collection efforts, and that is putting more pressure on the SME sector.
Another recession could be around the corner
With European economies on the brink of collapse, erratic global financial markets and a slumping retail sector, there is genuine fear that Australia and the global economy will suffer a major downturn.
"Outside the mining sector, sentiment is generally still poor and the strong Australian dollar is straining profits," says Dun & Bradstreet CEO Christine Christian.
Australia is already feeling the squeeze, with insolvencies riding by just over 12 per cent for the second quarter of this year. Opperman certainly believes that there is every prospect this trend of increased rates of insolvencies will continue into the near future.
"To some extent we are experiencing the calm before the storm as the world is closely watching how things pan out in Europe, particularly right now with the Greek debt crisis and Germany's response to that," he say. "But as the market starts to come tot terms with a new world economy and a new political structure within the European Union, we will begin to see more cross border insolvency work at HDY and there will also be flow on work in the SME market as well.
Harris acknowledges that in Australia, the depressed levels of retail demand and slumps in certain areas of the property market, coupled with the global economic downturn, are putting significant pressures on the Australian economy.
"To some extent we are experiencing the calm before the storm"
Jason Opperman, practice leader, banking, restructuring and insolvency practice, Henry Davis York
"The significant thing is not knowing how the events in Europe will pan out and whether the continuing problems over there and in the USA will affect the Australian economy."
The uncertain global climate and volatile share market environment has certainly dampened demand in the capital markets.
The head of the equity capital markets team at Clayton Utz, Stuart Byrne, says he sees the glass half full as to the question of whether he expects to act on an increasing proportion of capital raisings linked to balance sheet repair.
"The optimist in me says no," he says. "I think we are in a better position then we have been because of the extent of the capitalisation of the market. It would be too early to predict a rash of forced capital raisings.
"But come back to me in six weeks if they don't sort out Greece," he says wryly
With so much work in this area dependent on the prevailing economic condition, firms with an insolvency and restructuring practice are continually looking to strengthen their relationships with the banks and financial institutions, to also get work in the good times.
For Henry Davis York, which doesn't have the national or international capability of firms like Corrs and DLA Piper, its retention on the major banking panels is a major part of the long-term strategy of its 70 law strong banking, insolvency and restructuring practice, of which Opperman is its head.
"There is no doubt that the firm is built on financial services and public sector work, and restructuring and insolvency work is the foundation of our financial services work," he says. "But the foundation of many of our strong relationships has been built around d sticking with our core clients during the tough times, which has led to working with them again in the good times, and we saw that happen post-GFC."
Sir Thomas More would like the analogy of clients needing a lawyer for all seasons.
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