Media Release: Education and reform key to turning around attitudes to turnaround professionals

07 Feb 2023
Time to read: 2 minutes

More Australian businesses in financial difficulty are embracing a ‘turnaround’ culture, but further structural reforms are needed to shift attitudes towards the use of turnaround professionals, according to Clayton Utz Restructuring & Insolvency partner, Cameron Belyea.

Cameron, who was recently appointed to the Global Board of the Chicago-based Turnaround Management Association (TMA) and is a former president and chair of TMA Australia, said it was also important to continue to focus on educating directors and boards about the benefits of engaging turnaround specialists early on if a business was showing signs of financial distress.

The attitude of directors in Australia currently towards turnaround planning is getting better at the mid and large enterprise level. Several high-profile companies have successfully used turnaround planning in tandem with the safe harbour provisions – and there are literally scores of other, strong, companies that have as well: and, as a result, avoided liquidation outcomes,” Cameron said. “As we emerge from the worst of the pandemic, global changes are also driving more of a “rescue over liquidation” mentality when dealing with troubled enterprises. But there’s still a bit of a stigma around using turnaround specialists, and we need to keep working to change that.

Among proposed structural changes, TMA Australia recommends favouring tax breaks to new capital invested into distressed conditions by equity rather than debt instruments, priming new rescue capital, and removing artificial barriers for women to run formal restructures.

Cameron added that despite its critics, Australia’s safe harbour regime was leading the way globally. Introduced in 2017, that regime removes the liability of directors for insolvent trading if they can show that their actions were “reasonably likely” to lead to a better outcome than immediately placing the business into administration or liquidation.

TMA Australia research in 2021 revealed that more than 80 per cent of 55 troubled enterprises that went into a safe harbour successfully, survived, and only a small number needed to trigger a VA process,” said Cameron. “A Government review in 2022 into whether safe harbour was working unequivocally found that it did – which is perhaps unsurprising if you encourage directors to speak with stakeholders, de-stigmatise genuine rescue efforts and encourage them to find a capital solution that is not reactive but pro-active. Sometimes the changes are operational, or capital structure driven; other times it is about a strategic plan. Always, it is about communication and winning the support of stakeholders, whether this be combinations across workforce, customers, government, suppliers, counterparties or market players.

Cameron’s goal as a member of TMA’s global board is to widen the group of people who talk about turnaround planning as a specialty, and to see it embraced more widely.

"In the same way that a company engages a team of investment bankers, lawyers and accountants to mount a takeovers defence, I'd like to see more corporate boards engage turnaround specialists to help save businesses that are under pressure. And, to do so well before situations lead to burning platforms. That’s always a challenge: convincing directors to look away from blue skies and to see the moving earth below, planning for a present that is less stable than the past. Also, to ensure the enterprise, ideas and its people have a future."

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.