Calling in receiver is a sign of the times

Saturday, September 22, 2012

The iconic department store Clerys was temporarily put into receivership this week. The waste disposal firm Greenstar was put into receivership a month ago, while Atlantic Homecare has just emerged from a successful examinership process.

What all these firms have in common is that they are trading companies. Over the first couple of years of the downturn, the vast proportion of companies that were put into receivership came from the property sector.

“I think this is the start of a trend,” says debt restructuring specialist Declan Dolan with Dublin-based DCA Accountants. “At the start of the crisis, banks took the view that property companies had long-term problems so it was best to appoint receivers to deal with them. Now banks are taking a more realistic worldview and trading companies with high levels of debt are coming under scrutiny.”

Trading companies are coming under a lot more pressure, says insolvency specialist with PwC Declan MacDonald.

“This is only to be expected with the continued low levels of consumer confidence and spending. Many of these businesses have been over leveraged and the growth in revenues and profits necessary to bring their balance sheets back in line just is not there,” says Mr MacDonald who handled the examinership of Atlantic Homecare.

During the boom years, examinerships and receiverships were relatively rare. Companies had ready access to a plentiful and cheap supply of credit. But when the economy fell off the side of a cliff in 2008, these companies were badly exposed.

The creation of Nama in 2009 ensured that banks turned the screw on property firms, which meant many of them were put into receivership.

There is a tendency to confuse examinership and receivership but there is a big difference between the two.

Under examinership a company will apply for court protection to restructure its operations and renegotiate contracts with suppliers and creditors over a 90-day period. To be eligible, an independent accountant has to conclude that the company can return to profitability in the future before recommending the court grant examinership.

The downside is that it can cost up to €100,000 and a depressed economy weighs on the possibility of a successful restructuring. There have been 18 examinerships so far this year.

A receivership has more serious implications. A bank can appoint receivers to a company if that company is materially in breach of its debt obligations. At the extreme end is liquidation. A secured creditor can apply to have a company wound up if that company fails to meet its repayments. For example the Revenue Commissioners successfully applied to have the transport company Target Express wound up last month on foot of a €600,000 tax bill.

There have been 266 receiverships and 1,170 liquidations so far this year.

In the past a receivership usually spelled the end of a company through the sale of assets. “The receivership process has become a lot more sophisticated among banks and practitioners over the past few years. The banks take more time and look at and understand all options, which increases the chances of a more successful outcome,” says Grant Thornton partner, Michael McAteer, who was joint administrator of Quinn Insurance and handled Eircom’s examinership process.

Banks are now looking at companies in receivership, studying their business models and appointing operators to run that company so that a future sale can be made, he says.

Mr Dolan says banks have taken impairment charges on most of their corporate lending and that is why they are now more willing to put companies in receivership in an effort to recoup as much of the original loan as possible.

Moreover, there is also a greater willingness by the banks to appoint receivers because there has been a greater number of international investors enter the Irish market over the past six months looking to pick up distressed assets.

As long as the economy remains fragile, receiverships and insolvencies will be a prominent feature of the corporate landscape.

Aer Arann hopes to soar

Aer Arann was forced into examinership in Aug 2010. Oil had hit €150 per barrel, the volcanic ash cloud disrupted flights and the new motorway had reduced the travelling time from Dublin to Galway. Since coming out of court protection in Nov 2010, the firm has sub-contracted Aer Lingus’s regional routes and last month announced it was acquiring eight new planes. It expects 2012 passenger numbers to increase by 10% on last year’s one million level.

New investment and a new business model aimed at restoring growth and profitability proved crucial to emergence from examinership.

Since examinership, UK logistics firm, the Stobart Group, which owns London Sothend regional airport, has acquired 5% of Aer Arann. British-based businessman Tim Kilro owns 27.5% of the company, while founder Padraig O’Ceidigh controls 67.5% of the firm.Home