Successful multi-creditor re-financings and restructurings require those involved to understand the commercial and legal priorities of other stakeholders in order for a positive outcome to be achieved and unnecessary value destruction avoided. To aid this we have collaborated with Grant Thornton UK LLP to publish ‘Getting inside each other’s heads’ – a paper which explores the likely position and priorities of lenders, bondholders and trustees in a distress scenario.
Drawing on our expertise and the insights gained from running workshops and webinars with lenders, bondholders and trustees, the paper considers the perspectives and priorities of such stakeholders at different stages of the corporate demise curve.
The position and leverage of lenders, bondholders and trustees in a distress scenario has been impacted by the changes to the UK insolvency regime that were made in June 2020 (including the introduction of the new restructuring plan) and the enhancement of the Pensions Regulator’s powers in October 2021. This is supported by research which we conducted with Grant Thornton, which shows that:
- 57% of pension and restructuring professionals surveyed believe the extended powers given to the Pensions Regulator in October 2021 mean defined benefit (DB) pension schemes can expect to achieve a better outcome in a multi-creditor restructuring scenario than they would have done before those powers came into force. This is significant given that almost all of those surveyed (92%) expect the incidences of corporate distress to increase over the next 12 months.
- 65% of pension and restructuring professionals think the changes to the UK insolvency regime made in 2020 have increased the likelihood of a successful restructuring being achieved in a distress scenario.
- At the same time, 62% consider that the UK’s insolvency regime strikes a fair balance between lenders and DB schemes, while 24% believe the regime favours lenders to the detriment of DB schemes and 13% believing the regime favours the interests of DB schemes over lenders.
Commenting on the findings, Rachel Pinto, pensions partner at Herbert Smith Freehills, says: “Lenders and other corporate creditors are clearly alive to the risks posed by the Pensions Regulator’s enhanced powers and the need to have regard to the interests of any defined benefit pension scheme involved in a restructuring scenario. Failure to do this could lead to an investigation by the Regulator, financial penalties or, in a worst-case scenario, a criminal prosecution”.
Our paper is designed to promote mutual understanding with a view to helping parties achieve a positive outcome in cases of corporate distress. This approach is supported by Mike Birch, Director of Supervision at the Pensions Regulator, who recognises that: “Restructurings are complex and time-pressured. Misunderstandings between stakeholders can make an already critical situation harder to resolve positively. While TPR stands ready to intervene and to use our powers, it should be possible to resolve most situations without formal action. That’s why I welcome this initiative to help banks and trustees to understand each another’s positions and to work constructively together in future restructurings.”
‘Getting inside each other’s heads’ is available for free download here.
If you would like to discuss any aspects of the paper or the findings from our research please contact: