By Timothy Sackar
The year 2020 will be remembered as an extraordinary year (perhaps for all of the wrong reasons). While the global financial crisis from 2008 was for the most part about the mismanagement of financial leverage, 2020 has been a confronting and sobering lesson for some on how to manage a company with zero revenue.
In Australia and abroad, markets and sectors in 2020 have waded through a pandemic, political pressures and economic volatility on a global scale. But that doesn't mean we cannot see some general trends (and opportunities) emerging in restructuring and insolvency.
In the 2020 edition of From Red to Black, two sectors come under the microscope: aged care and energy and resources. Over the last few years, aged care in Australia has seen a tightening of profitability and a market consolidation. That combination of factors makes it a sector ready for new thinking and innovative approaches.
If aged care will be looking to voluntary administration and similar regimes to help it move forward, energy and resources is vigorously exploring multiple approaches for more capital from alternate funders. The market at the moment is not sitting down to a set menu; it's a smorgasbord. That range, however, only underscores the need for making a careful choice from the many options we set out.
Whether restructuring or going into insolvency, the employee is a key focus – most obviously when it comes to managing their claims. Some recent judgments have resolved some of the key issues in two respects: how liquidators must approach their task with Employee Priority Claims and who is the true employer in insolvent corporate groups.
Finally, we consider what might lie ahead of us. The general social and economic upheavals of this year have been trailed by government response and relief. At some point relief packages will end and companies will be forced to face their own true profitability – or mortality. We see private equity firms scouting acquisition opportunities and the chance for businesses to engage in creative destruction by strategic restructure in order to transform into something stronger. But what if that chance is not taken? Conventional wisdom says that formal insolvency appointments will rise in response to a recession. While this is yet to really play out, calendar year 2021 may see a number of corporates at sea without a proverbial paddle.
We hope our focus on sectors, practical issues and future trends in From Red to Black can provide some insights into the options available while at sea in a storm.