Following INSOL Europe’s EECC conference in Riga, Latvia, the co-chairs of the Young Members Group wanted to give all of you a short update on activities and news around this event.

The conference started on Thursday evening with a drinks reception and dinner at the roof-top restaurant of the Gutenberg Hotel, which is located in the heart of Riga’s old town. Delegates, amongst them a large number of YMG members, were greeted by sunny and clear weather and enjoyed a great evening, which ended at a Cuban cocktail bar around the corner :)

The 7^th European Insolvency & Restructuring Congress which was organised by the Insolvency Law and Restructuring section of the German Bar Association (DAV) through its European Working Group in cooperation with INSOL Europe and the ReTurn Association was the occasion for the audience to be informed on the agenda relating to the adoption process of the EU Directive proposal on restructuring, insolvency and second chance (‘the Directive proposal’). While a partial general approach has already been reached, it was important for the Keynote speaker to remind the necessity to reach an agreement between the Council of the European Union and the European Parliament before the European Parliament elections planned in May 2019.
 
A lecture on the need for a doctrinal foundation for the Preventive Framework was then followed by a panel discussion on the Directive proposal where it was emphasised the need to build a common culture of rehabilitation in Europe. The first afternoon workshop focused on challenges of digitisation and legal tech in restructuring and insolvency while the second examined the available options for secured creditors in or out of court in several jurisdictions (Austria, France, Germany, Greece and the Netherlands).
 
The second day of the Congress began with an update on the CJEU and other landmark decisions in European insolvency law. It was followed by a critical overview of the Directive proposal on preventive restructuring frameworks from an Austrian perspective. Before the closure of the Congress, the discussions focused on the cooperation and group insolvencies beyond the scope of the EIR after Brexit and how to create an attractive insolvency hub based on their experience in Germany, Singapore and the US.

A full report by Myriam Mailly can be read here.

The INSOL Helsinki Joint One Day Seminar 2018 which was jointly organised by INSOL International, INSOL Europe and the Finnish Insolvency Law Association (FILA) was the occasion for the audience to be informed on the main features of the EU Directive proposal on restructuring, insolvency and second chance (‘the Directive proposal’) and to discuss with the panellists the rationale of the tools contained into the Directive proposal and the risk that it could be (too) easily used at the expense of creditors.
 
The One Day Seminar was also the occasion to share two success stories from Finland (national operational business restructuring) and from France (international financial restructuring) as well as the latest developments on group insolvencies under the application of the EIR Recast (in particular the German/Austrian ‘NIKI cases’) and the current work undertaken by the UNCITRAL Working Group V and the establishment of a so-called ‘planning proceeding’.
 
The seminar ended with a focus on two important issues in the Nordic region, namely environmental liabilities in bankruptcy proceedings and debt-equity swaps.

A full report by Myriam Mailly can be read here.

By a judgement of 4 April 2018, the Dutch speaking commercial court of Brussels opened insolvency proceedings for three main companies of the Belgian well known Flamant Group : Flamant SA, Flamant Group SA and Flamant Retail Belgium SPRL.

Flamant is a lifestyle and interior design brand, founded more than 35 years ago, and offers a wide range of styles and products. In Europe, Flamant has become a reference brand for exclusive, charming and timeless interiors. The company experienced a rapid growth which led to a turnover of 44 million euro in 2008. His Majesty Filip, King of the Belgians, awarded the company with a royal warrant. The company has the following sales channels: 7 own stores in Belgium and France, more than 200 client-resellers in more than 40 countries and an online store.

In 2009 the Flamant Group and its branches encountered financial difficulties due to the global economic and financial crisis, which resulted in a drop in turnover. On 4 April 2018 the court ordered a judicial reorganisation by transfer under judicial authority and appointed Bart De Moor as insolvency practitioner, in view of a transfer of the undertakings and continuation of the activities.

The proceedings include a stay until 13 June 2018. Bids are awaited for the entire undertakings or parts of it and large publicity is made towards potential interested purchasers. Bid may be made for the whole undertakings of the companies involved, including its subsidiaries, or for certain activities or a combination thereof. Upon proposition of the insolvency practitioner the Brussels court of commerce will decide on the authorization of the transfer to one or more purchasers in view of the continuation of the activities without interruption. The decision is made with the continuation of the employment and the creditors’ rights and interests as main criteria. Upon closing of the insolvency proceedings and a successful transfer of a major part of the viable activities the initial legal entities in reorganization will presumably be liquidated.

For more information contact Mr. Bart De Moor, lawyer at STRELIA,
Email: bart.demoor@strelia.com

When Tarmac’s construction arm was spun out in 1999 and rebranded as Carillion, the new name was said to be a corruption of ‘carillon’, a peal of bells sounding a clear, new identity to the industry. By January this year, the peal had slowed to a death knell, as Britain’s second largest contractor collapsed spectacularly and controversially.

As the recriminations gather momentum, a light is shone on the industry’s precarious business model of gigantic projects yielding meagre profits. Juggling complex contracts spanning a range of sectors and markets is testing even for the world’s most talented management. Add in projects going wrong, then subtract a degree of talent and the outlook quickly becomes bleak.
 
Carillion’s debt profile and pension deficit were for a long time wholly inconsistent with its business model. Delivering a net margin of 3% on 2016 sales of more than £4bn left hardly any wriggle room once interest payments and an unrealistic dividend policy were serviced.
 
That is why predictable cash flow from operations is always so critical. It’s also why former Carillion CEO Richard Howson’s apparent strategy of chasing risky low-margin contracts, while keeping subcontractors unpaid for up to 120 days, was unsustainable.
 
The whiff of desperation about the company’s cash management clearly did not elude the hedge funds which have made fortunes shorting Carillion stock from as far back as 2013. The inexplicably low tenders for large contracts, now obviously to keep the cash circulating, seems to have prompted fewer questions.
 
The revenue profile is, ultimately, why the company has - at first, bafflingly – gone into liquidation, rather than administration.  It is now obvious that there are no viable parts of the business to sell. The contracts are certainly not meaningful assets to borrow against, even if a diligent administrator might have found a creative way to sell them on.
 
What remains baffling for the corporate recovery community is why the six to seven months between Carillion’s major profit warning in mid-2017 and the company’s eventual collapse did not feature a significant day-to-day involvement of professional, external turnaround specialists. It beggars belief that the full picture of woe was not known to the executive board some time before this.
 
No cheers for the non-executive directors here, either.  Howson was replaced as CEO on an interim basis by an NED of two years’ service, Keith Cochrane. He would have stepped aside this month anyway when a permanent boss joined, although his basic salary of £750,000 was to remain until July. NEDs had already approved, in 2016, a relaxation of rules to claw back bonuses.
 
A business in such dire straits probably needed a full suite of interim executive directors with turnaround experience – at the latest, early in 2017. Some existing directors might have moved to NED roles, for continuity and assistance. The move would no doubt have hastened the slide in Carillion shares, but something might have been salvaged for investors at the end.
 
Instead, directors persisted with a dereliction of duty on a scale rarely seen before in a major UK public company.  The egregious abandonment of decency in matters of boardroom pay, given the circumstances, is symptomatic of the lack of grip on reality at the top. It’s a kick in the teeth for all stakeholders, but certainly not the first or last time spectacular failure has been rewarded.
 
Much worse and longer lasting is the effect on Carillion’s ten of thousands of employees, its suppliers, many of them SMEs, subcontractors, contract partners and clients.  Those who survive this sorry episode, including banks, will incur significant costs and write downs. Others will lose livelihoods, businesses and homes. The total fallout, including debt and shareholder value, could run into billions.
 
Over more than a decade, Carillion had been a consolidator in the construction industry. It acquired Alfred McAlpine, Mowlem and part of John Laing. In 2014 it failed to win Balfour Beatty for £2bn. Now Balfour faces estimated costs of £45m from its suitor’s collapse.
 
None of these deals insulated Carillion from the flawed workings of its sector. They added diversity which only made the enlarged group even harder to manage, while possibly encouraging an unrealistic view of growing the top line. None of it helped margin growth, cash flow or risk management longer term.
 
The hedge funds were right, four years earlier. Last year, Carillion shares were consistently among the most shorted. The bells had begun to toll.
 
David Buchler is chairman of restructuring and turnaround advisers Buchler Phillips