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  • Turnaround Starts on the Inside


    PRESS RELEASE The GFC might have exacerbated the situation but according to the recent 333-TMA Survey of Australian Turnaround Activity* the main causes of company distress are primarily internal and ...


    The GFC might have exacerbated the situation but according to the recent 333-TMA Survey of Australian Turnaround Activity* the main causes of company distress are primarily internal and controllable.

    The survey, the first of its kind in Australia, offers a unique insight into the causes, challenges, responses and success of corporate turnaround activity in Australia during the recent financial crisis.

    With 60% of respondents predicting 2011 to be an even busier time for the turnaround industry this is certainly not good news for Australian Businesses.  50% also believe the Australian economy (excluding the mining and resource sectors) will take another hit in the coming year resulting in a weaker economic climate.

    Management issues, unsustainable debt and inadequate financial controls were found to be the main causes of company distress. Disturbingly, these causes are primarily internal and controllable, as opposed to external general causes such as a drop in demand.

    Adrian Loader, President of the Australian Turnaround Management Association, said “Businesses are already operating in a tough economic environment and things are likely to get worse before they get better.  Now is the time for Australian businesses to be extra vigilant in how they operate, concentrating on the basics, and most importantly if they have concerns get specialist help immediately, early intervention is the key to survival.”

    The survey highlighted Financing and People as the ‘Big Two’ Barriers to Success. The availability of external financing and managing the short term cash position was identified as an issue along with management capability, the lack of leadership and a reluctance to take action and make the necessary changes – all were seen as a major obstacles.

    If a struggling business is going to succeed a holistic approach is required. 62% of turnarounds survey had a high level of involvement from all four key solution areas – balance sheet; pricing and revenue; operations and cost reduction; and working capital. 85% of turnarounds involved either a debt write down, restructure, or capital raising.

    Martyn Strickland, Managing Director of 333 Consulting, said “This survey is a clear reminder that leadership and the ability to create ‘runway’ are decisive features of a successful turnaround –I believe these areas are where Australian companies under stress can and should be doing more quicker”.

    *The survey, the first of its kind in Australia which draws on the experience and insights from industry experts, offers a unique insight into the causes, challenges, responses and success of corporate turnaround activity in Australia during the recent financial crisis. 

    The survey completed by 117 stakeholders from all disciplines – debt and equity holders; management teams and board members; lawyers and insolvency practitioners.
    The survey profiled activity from over 100 Australian business turnarounds:

    • 62% were from three major industry groups – industrial and manufacturing; property and construction; retail and consumer services;
    • 60% of respondents were from businesses with an annual turnaround of less than $50 million; and
    • Average length of time for each turnaround is circa 12 months.

    333 Consulting specialises in improving corporate financial and operational performance, developing strategic options for underperforming businesses and executing corporate turnarounds.

    The Turnaround Management Association (TMA) is an international not for profit organisation providing a forum for professionals practicing in the field of “Turnaround Management” – restoring value to struggling enterprises and avoiding terminal insolvency.

    TMA is grateful for the support of it National Partners – Platinum National Partners:  Allegro Private Equity and the Australian Employee Buyout Centre – Gold National Partners: 180 Corporate, Blake Dawson and Freehills.


    Martyn Strickland
    Managing Director
    333 Consulting
    M 02 8257 3026

    Mick Calder
    333 Consulting
    M 03 8623 3329

    Emma Green
    General Manager
    Turnaround Management Association Australia
    Phone: 1300 042 811

  • Troubled firms can bank on turnaround


    Weekend AustralianBy Alistair Jones8 May 2010, Page 7 YOUR company is financially distressed and the vultures are circling. If something isn't done everything will be lost. Who do you call? This is ...

    Weekend Australian
    By Alistair Jones
    8 May 2010, Page 7

    YOUR company is financially distressed and the vultures are circling. If something isn't done everything will be lost. Who do you call?

    This is a job for a turnaround management specialist, an evolving field of consultants dedicated to restoring value to struggling enterprises and avoiding terminal insolvency.

    Since business was invented, one man's misfortune has been another's advantage, a credo reinforced by literature and films featuring usurious lenders, dodgy accountants and rapacious lawyers. But, according to Turnaround Management Association Australia, this perception does a disservice to a niche industry of modern professionals who have the survival and renewed prosperity of companies as their prime concern. They also have an ethical code.

    The legitimacy of the field has been recognised by the introduction this year of three executive certificate courses developed in consultation with TMAA and offered within the master of business administration program at the University of Technology, Sydney. Each of the courses accountancy for turnaround, management for turnaround and law for turnaround will be taught by academic staff from the UTS faculties of business and law and will count as subject credits in an MBA. Course completions will grant accreditation with TMAA as turnaround practitioners.
    TMAA's parent body was established in the US as a nonprofit industry association dedicated to corporate renewal in 1988. US membership now stands at 9000.

    The Australian chapter was established in 2003 and has attracted 300 members.

    Local president Adrian Loader says TMAA was initially heavily sponsored by the ANZ bank "because they saw the merit in it".

    Loader says he "got on the bandwagon about three years ago" and the association really got going "when insolvency practitioners wanted to promote turnaround rather than just corporate liquidation". Along with many bankers, Loader is also a member of the Insolvency Practitioners Association of Australia, as are about 30 per cent of TMAA members.

    "I think there is renewed emphasis on corporate turnaround because most people don't want there to be a whole number of liquidations or administrations in Australia." TMAA members include "private equity owners [and] some mezzanine lenders, people who provide capital into restructuring companies," Loader says. "You've also got the major banks [of which] NAB is probably the most active. Then you have advisers, [including] 90 per cent of the major restructuring lawyers [plus] the accountants. "Then there are operational turnaround people as well, people who go into businesses and try to improve the profit."

    TMAA accreditation has no regulatory authority, nor does the organisation find work for its members. It sees itself as "an educational and networking opportunity for people to learn and develop skills in turnaround". But, as the dominant industry association, its imprimatur is developing a practical clout by virtue of its critical mass.

    When UTS began drafting its certificate courses, it drew on information from the US organisation, which introduced a certified turnaround professional designation in 1993. The university has developed an academic program  specific to Australia. It was informed by "detailed discussions" with TMAA, including input from industry specialists, such as Loader, who will be guest lecturers during the courses.

  • The CBA's business rehab


    Business Spectator by Nick Samios Posted 8 April 2010 6:23 AM One of the interesting features ...

    Business Spectator

    by Nick Samios
    Posted 8 April 2010 6:23 AM

    One of the interesting features of the recent economic speed bump we have experienced in Australia is that the banks have called in receivers on their distressed clients much less than was anticipated (compared to the early 90s, that is).

    This could be attributed to a number of factors, but I will put forward two. One is that in the early 90s we did not have 'voluntary administration' as an option available to businesses in distress. The insolvency laws changed dramatically in 1993 and businesses could, for the first time, avail themselves of our version of what the US calls Chapter 11 (yes, very different here I know, but you know what I mean).

    So, this time around, the owners of distressed businesses brought on their own insolvencies in order to give them a chance of surviving and rebuilding. Less opportunity, then, for banks to appoint their own insolvency people.

    Another factor has been that the banks have been inclined to bring the management of acute business distress in-house. Banks got into the habit several years ago of employing insolvency practitioners in their work-out departments in an effort to better manage their distressed exposures.

    What has caught my eye recently, though, has been the CBA’s advertisement for “Senior Opportunities – Corporate Turnaround/ Recovery.”

    That the bank is using this language (ie, the word "turnaround”) is surely a triumph for the Turnaround Management Association – a not-for-profit that has been actively engaging with the banking community over the past decade in an effort foster a “turnaround management” culture in Australia, replicating the tolerance and support for corporate rescue that exists in the US and parts of Europe.

    Regardless of whether or not that is the case, it is interesting that the CBA should nail its colours to the mast in this regard, seeking the appointment of professionals who will presumably facilitate and champion corporate turnarounds.

    It would be fair, I think, to say that of all the banks – the NAB have really led the way in this area, according to my anecdotal sources and based on my own experiences in dealing with work-out departments.

    Typically, the asset management areas of banks (also known as 'bad bank' departments) are split into two – 'rehabilitation' and 'exit'. The rehab teams aim to manage the client in the hope of returning the file back to the branch from where it came. The exit teams typically seek to exit 'relationships' by whatever means are legally available to them.

    Historically, 'exit' has been the focus for banks who are reluctant to throw good money after bad through failed rehabilitation efforts.

    I did speak to one insolvency practitioner who challenged my theory on the reduced number of receiverships and all but told me to take off my rose tinted glasses. He said "the thing banks are doing is suggesting to companies to appoint a voluntary administration instead of them appointing a receiver". The bank then gives the company a short list of practitioners they should approach.

    My contact then went on to say that "in the main they achieve a winding up of the company with their interests 'taken care of' without any bad publicity. Look at Timbercorp".

    Regardless, it is good to see the CBA acquiring resources in its rehab (turnaround?) area, and hopefully a sign of things to come.

  • Turnaround management now at UTS


    Risk MagazineApril 2010 Edition, Page 10 Turnaround management now at UTS Emergency "turnaround anagement" is being recognised at the University of Technology Sydney (UTS) with the launch of three executive certificate courses ...

    Risk Magazine
    April 2010 Edition, Page 10

    Turnaround management now at UTS Emergency "turnaround anagement" is being recognised at the University of Technology Sydney (UTS) with the launch of three executive certificate courses this week.

    The courses were developed in partnership with the non-profit Turnaround Management Association of Australia (TMAA) and are among the first in Australia to focus on developing the skills necessary for restoring value to struggling enterprises and avoiding terminal insolvency.

    With increasing demand for expertise in this field - saving critically injured companies - the courses target key interventions in management,
    accounting and law that give a company the best chance for recovery.

    "Like an emergency room doctor, the talent lies in making critical decisions quickly," said TMAA president, Adrian Loader.

    "Until recently turnaround specialists were a relatively unknown breed in the business world. However, as once-stable companies struggle to maintain profitability, the expertise of corporate renewal professionals is more in demand than ever," he said.
    "The turnaround specialist must enter a company with a fresh approach and complete objectivity. Operating in the eye of the storm, they have to deal equitably with angry creditors, frightened employees, wary customers and a nervous board of directors."

    The three courses - Accountancy for Turnaround, Management for Turnaround and Law for Turnaround - will be taught by academics from the UTS faculties of business and law.

  • More Than a Safe Harbour to Stop the Sharks from Circling


    TMA’s response to the Commonwealth Government’s discussion paper on Insolvent Trading The Australian economy is swimming in dangerous waters.  Many mid-market Australian companies are going ...

    TMA’s response to the Commonwealth Government’s discussion paper on Insolvent Trading

    The Australian economy is swimming in dangerous waters.  Many mid-market Australian companies are going to face the “great white” head on when it comes to refinancing.  A better system must be introduced that allows directors to make considered decisions for the benefit of creditors and shareholders.  The administration process must ensure better returns for creditors and greater likelihood of ongoing employment for staff.

    Australia’s leading professional bodies the Turnaround Management Association of Australia (TMA), Law Council of Australia and the Insolvency Practitioners Association of Australia jointly support the introduction of a modified business judgement rule.
    The existing law, without the new “safe harbour” for directors, impedes and prevents business workouts whilst limiting options for directors to deal with financial distress.

    The proposed business judgment rule strikes the appropriate balance between creating certainty for directors and maintaining business value for the benefit of creditors, shareholders and employees.

    How do we stop the sharks from circling?

    The TMA believes the “safe harbour” does not go far enough; additional legal changes are required to protect creditor and shareholder value, protect jobs and stop the sharks from circling.

    The changes that are required:

    •  A moratorium on insolvency clauses (ipso facto clauses) in contracts.  Creditors and suppliers cannot terminate contracts with companies in administration merely because of the appointment of an administrator;
    • Creditors can vote to shorten an administration period to 5 days to enable a quick sale/restructure of a business, thus reducing losses in business value through an administration period and administration costs;
    • Potential administrators will not be disqualified from being appointed as an administrator because they provided services or advice prior to their appointment.

    With the sharks no longer a threat what will this mean?

    • Potential administrators can investigate and develop advanced plans to restructure or sell businesses prior to their appointment
    • If the business does go into administration, there is likely to be a greater return for creditors because:
           *   Creditors can accept a quick sale/restructure if they think it is in their interest; and
           *   Administrators can sell a “business” rather than assets as contracts in a business will remain in place (providing all payment and other terms are up to date).
    • Jobs are preserved when businesses are sold rather than assets being sold

     The Turnaround Management Association is the world’s largest international professional body providing a forum for professionals practicing in the field of “Turnaround Management” – restoring value to struggling enterprises and avoiding terminal insolvency.

    Our membership is predominantly made up of professionals practicing in turnaround management, law, insolvency, accounting, management consulting, banking, finance and private equity. With over 300 members in Australia and over 9000 internationally in America, United Kingdom Brazil, the Czech Republic, Finland, France, Germany, Italy, Japan, the Netherlands, Southern Africa, Spain, Sweden, and Taiwan.

    For more information or a direct quote please contact Adrian Loader, TMA President.  Adrian is also Managing Director of Allegro Private Equity, a $300m private equity fund.
    Phone: 1300 042 811 or email

  • Solving the Insolvency Puzzle


    Business Spectator by Nick Samios Posted 11 Feb 2010 6:40 AM

    Business Spectator

    by Nick Samios
    Posted 11 Feb 2010 6:40 AM

    The sale of Australian bonds offshore is now set to become easier courtesy of the recent overhaul of insolvency laws according to ANZ head of debt capital markets Brad Scott. He was primarily referring to the Sons of Gwalia decision course, but more reform is on its way.

    We seem to review of our corporate insolvency laws fairly regularly in Australia. Anyone remember the Chapman enquiry in 2003?

    I suppose with the recent increase in insolvencies and the spate of high profile collapses early on in the GFC, another review was inevitable, and so last month, The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen, announced a package of reforms to Australia's corporate insolvency laws.

    The Minister said at the time that “the reform package contains a range of reforms directed at reducing the costs and complexity of insolvency administrations; improving communications with creditors; and reducing the potential for abuse of corporate insolvency law. The reforms will include the adoption of substantially all of the recommendations made by CAMAC in its Issues in external administration report."

    We have since seen responses from various insolvency practitioners in the media, all with their own barrows to push, so I thought I would get you a different perspective, and so spoke to Adrian Loader, the current President of the Turnaround Management Association. Adrian is also Managing Director of private equity firm Allegro Private Equity, and as such has plenty of hands on experience in corporate turnaround and restructuring with skin in the game.

    Nick Samios: Last week, David Bell, Chief Executive of the Australian Bankers Association welcomed proposed reforms to Australia’s corporate insolvency laws. He said that “there have been examples where a company has been propelled into an insolvency administration because of the director’s duty not to trade whilst insolvent but without sufficient opportunity for good faith consideration of options that could salvage the company”. Do you agree, and if so, what needs to change?

    Adrian Loader: The current trading whilst insolvency laws do not work because irrespective of the legal liability, the laws are complex and the prosecution rate for trading whilst insolvent is extremely low. It seems that ASIC only pursues the most blatant of cases and thus I question the effect of the trading whilst insolvent law.

    The hardest thing about drafting legislation to deal with directors duties in insolvent situations is trying to get the balance right. If a company is being turned around, then there is a high likelihood that it is going to be loss making and probably cashflow negative for a period. If the turnaround is a success, then jobs and equity value would have been saved. If the turnaround is unsuccessful then it is likely that the creditors will end up losing more money. Trying to design a law that encourages turnarounds, yet protects creditors, is very hard, as the range of situations where distress occurs is varied.

    The big issue is that size of company does matter. In large companies, shareholders, directors and management are generally different people. In small family companies it is very common for these to be the same person or from the same family (i.e. the owner, the director and the manager of the newsagency are a husband and wife team).

    This leads to the situation where directors in small companies have a different risk/reward appetite to independent directors on public companies to continue trading when a company is losing money.

    Any weakening of the trading whilst insolvent laws encourages shareholder directors to trade whilst insolvent as often all the family wealth is tied up in the business. At the other end of the spectrum, in large public companies, the risk/reward appetite is reversed. Any gain from a successful turnaround goes to shareholders whilst liability (which is often significant) goes to the directors. These public company directors obtain insolvency advice, which is generally conservative, and this can lead to the situation where appointments of administrators happen before options to salvage the company can be worked out.

    Perhaps the simplest way to address this issue is to have different laws for different sized companies. Maybe small turnover companies (say less than $50 million) have the current laws but larger turnover stores (say over $50 million) have the changes suggested by David Bell. This would have the side benefit of allowing poorly performing larger companies to attract good quality directors who otherwise would not be prepared to join the company because of fear of trading whilst insolvent.

    Samios: Every couple of years we hear calls for Australia to adopt “Chapter 11” style laws. Do you think we really need Chapter 11 in Australia? As a secured lender, personally I don’t think so, though I do see merit in Debtor in Possession finance. Critics of Chapter 11 point to the phenomenon of “Chapter 22” and “zombie companies”. What do you think? Are there good bits and bad bits in Chapter 11 we should consider/ avoid?

    Loader: I am a fan of creditor led insolvencies. However the role of the administrator should change to being able to properly restructure a company rather than to sell the assets through a process. There are many issues making the current administration process efficient, of which I will discuss two:

    Issue one – it is very difficult for companies to restructure through the administration process because almost all commercial contracts have a clause stating that an insolvency event leads to a termination of the contract. In the event of an administration all the contracts have to be renewed (leases, supply contracts, service contracts etc) making it very difficult for the administrator to sell a business rather than just the assets or restructure the company to make it profitable. This significantly reduces the ability of the administrator to restructure. A better way would be to legislatively ban the effect of these clauses.

    Issue two – time period for insolvency. Administrators should have the power to quicken the administration process if agreed by creditors. Generally, every day a company is in administration it loses value as customers leave and suppliers stop servicing it. Flexibility for the administrator would improve the outcome for all creditors

    Samios: The Japanese government has established what it calls the Enterprise Turnaround Initiative Corp to facilitate the turnaround of large companies. We are seeing it in action with JAL. Should reformers be looking at something like this for Australia?

    Loader: Having funding available to assist in the bailout of companies is a good idea. Using government money is not a good idea. There are many private equity players in the market who provide this service and they are very experienced in assessing the risk and reward of participating in the bailout. Government’s would not be as clinical in their assessment and could easily be influenced by other policy goals. Additionally, the government will always be blamed for either assisting a troubled company or industry or not assisting it. Look at the criticism that the Obama administration received from supporting GM for example.

    Adrian Loader was at pains to point out that the views he expressed here are his own, and not necessarily shared by the TMA, but I thank him for his valuable insights all the same.