NEWSInternational...Spain commented: “Banks won’t want to get rid of assets until they have...

• Letter from TMA Vice

President, International

Relations

• TMA Europe Conference

• Seven Questions

• TMA Asia-Pacific Conference

Debuts

• TMA Australia, International

Chapter of the Year

• News Briefs

• Weighing the Economic

Scale: Brazil

Second Quarter 2011

NEWSTMA International

A message from TMA’s VP of International Relations

by Alan Tilley, UK

Has the ticking time bomb exploded?

In the last issue the point was raised: it is not a question of if but when. The “if and when” referred

to when the dam would burst and restructuring work would start to flow again in the volume associated with recession. At the TMA Europe Confer-ence in Helsinki early in June, the mood was upbeat about the likelihood of an increase in assignments. Since returning from Helsinki, the pace has quickened with several headline insolvency filings in the UK’s retail in-dustry and signs from other countries that the banks can no longer “extend and pretend.”

Greece continues to defy gravity with political dreams denying economic reality. On any commercial measure it is insolvent. Countries don’t go bust; they devalue. Default or devalue outside the euro, the impact on bank balance sheets and credit in Europe will have ramifications for our indus-try and soon.

Congratulations to TMA Australia for winning the International Chapter of the Year Award and also helping estab-lish a satellite region in New Zealand. TMA International has modified the license agreement to accommodate this process, which will be an interest-ing model for expansion into smaller territories that benefit from the administrative strength of larger chap-ters while they achieve critical mass.

This edition also contains reports on both the Asia-Pacific and European conferences and reports from South America. I have also just returned from Jamaica where work is under way to start a Caricom Chapter. Chap-ters are in formation in Hong Kong/China and Singapore/ASEAN. There is interest in Poland and Russia. TMA is in robust health internationally and continues to grow. •

Alan Tilley is a principal of Bryan Mansell and Tilley LLP specializing in international and European cross-border turnaround and restructuring.

(Top) Ronald R. Sussman, TMA corporate secretary, and Alan Tilley, greet at the fourth annual TMA Europe Conference in Helsinki. (Bottom) TMA Chairperson Lisa M. Poulin, CTP, speaks about the impact of globalization on corporate restructuring at the TMA Asia-Pacific Conference

TMA International News 2nd Quarter 2011•2 ©2011 Turnaround Management Association


TMA International News is an electronic publication of Turnaround Management Association, 150 S. Wacker Drive, Chicago, Illinois 60606. Published quarterly, it serves TMA’s non-U.S. members and focuses on topics of major interest to the international community of corporate renewal professionals. © 2010 Turnaround Management Association

Editorial Advisory BoardAlan Tilley –TMA Vice President, International RelationsLisa M. Poulin, CTP – TMA ChairpersonMark S. Indelicato – TMA PresidentLinda M. Delgadillo, CAE – TMA Executive DirectorDaniel E. Goldberg – TMA Director of Integrated CommunicationsMichele Drayton – Managing Editor

Editorial CommitteeSandra Abitan – TMA MontrealMichael Fingland – TMA AustraliaJohn Willcock – TMA United KingdomEiten Inamura – TMA JapanColin Batchelor, Jan van der Walt – TMA Southern Africa

These are exciting times for the Turn-around Management Association in Europe. Although there have been con-

ferences for the continent’s growing number of chapters before, there was a sense in Helsinki that this was perhaps a turning point for the drive to build a truly pan-European network.

TMA Chairperson Lisa Poulin, CTP, had flown from the U.S. together with Ron Sussman, the organization’s corporate secretary, to attend both the conference and an important meeting of all European chapter heads. It was signifi-cant that the conference was hosted by one of the “youngest” chapters, Finland, and the enthusiasm and efficiency of the locals, led by conference chairman Christian Jakovlew, were remarked upon by attendees.

This European conference follows a similar pan-Asian conference, in what Alan Tilley, TMA International vice president of inter-national relations, calls a process of building “three pillars” of the global TMA network: the Americas, Asia and now, Europe.

Also represented at the meeting were chap-ter representatives from Germany, Spain, Italy, France, the Netherlands, Ireland and Poland. Michael Cappy was there represent-ing a Swedish chapter that is in the process of being relaunched, while chapters about to

TMA Europe Conference: Helsinki

Recession or Recovery?A New Paradigm in Restructuring.By John Willcock, UK

achieve “lift-off” included Romania, Russia and Turkey.

The TMA outside the U.S. is now growing at a rate of 20 percent a year, with 16 international chapters. Tilley said growth in some places like China was “explosive.”

Sovereign debt crisis

The economic background to the conference might be described as equally volatile. By the time you read this, Greece may have departed the euro. Certainly the possibility of a sov-ereign debt default in the Euro zone was a common talking point.

Donal O’Mahony of Davy Capital Markets in Dublin gave an excellent, if chilling, graphic tour of the origins and nature of the current crisis. Just how countries like Ireland man-aged to end up with banking sectors with li-abilities many multiples larger than their gross domestic product will be looked back on as a catastrophic policy error.

O’Mahony titled his session “Ireland’s sover-eign debt crisis – cause and effect; a model restructuring or a burden for future genera-tions?” His conclusion seemed to be that it was both. Ireland’s “bad bank” NAMA has bought around 80 billion euro’s worth of soured prop-

TMA International News 2nd Quarter 2011•3©2011 Turnaround Management Association


erty loans from the five big banks at average discounts of over 50 percent. Working out that vast loan book has immediately challenged the resources put into the fledgling agency. The workout process will take far longer than was originally forecast, said O’Mahony, while sales from the agency were only in their infancy.

The UK real estate market has recovered better than its Irish counterpart, he said, not least because of London’s position as a global financial center, and this will enable NAMA to sell off around 20 billion euro of British assets, including many landmark buildings like the Connaught Hotel and the Citi office building in Canary Wharf.

But sales will be limited to 10 percent of NAMA’s portfolio in the first few years, he said, “in order to gauge valuations.” In a world where many real estate markets have simply stopped working, valuation becomes akin to alchemy. But banks need valuations for the portfolios to rebuild their shattered balance sheets.

English Schemes of Arrangement or “going to London”

Another conference talking point was the increasing use of pre-insolvency procedures or “hybrids” for restructuring companies, in particular, the use of the English law Scheme of Arrangement by large German and Spanish businesses.

Recent instances of companies “going to London” to take advantage of the more user-friendly English corporate reorganization legislation include the German companies Tele Columbus and Rodenstock, and the Spanish companies La Seda and Metrovacesa.

So it is a live issue. German and Spanish turn-around managers and lawyers are wondering, Will this trend continue or even increase?

Both the panel session on cross-border legal issues chaired by Lars Westpfahl, and my own session, “A new paradigm in restructuring,” discussed this increasing use of schemes.

To sum up both panels, there seem to be two camps. The first regrets that work that should be carried out in its own jurisdiction is instead being “forum-shopped” off to “Las Vegas-on-the-Thames,” London. Even British practitio-ners admit that schemes are far too expensive, take too long and generate huge amounts of paper. A general opinion is that the cost of schemes could be cut by a half to two-thirds without affecting quality.

Perfectly reasonable alternatives to English schemes are being developed. The Spanish is the most far developed, while German legis-lation is set to come into force this autumn, elections permitting. This first camp antici-pates that these measures, along with similar pre-insolvency procedures in other countries like France’s sauvegarde—or “Chapter 11 á la Francaise”—will end the need to go to London.

Others are not so sure, and they include many practitioners from Germany and Spain, the countries most affected so far. For instance, when the new German law is enacted, it will take several years of trial and error to “bed it down” and make sure it works according to the market’s expectations and requirements. Dr. Volker Beissenhirtz of Schultze & Braun said in Helsinki, it would take “two or three years of use to bed it down.”

By that time, many companies may have already used the English scheme. For the

TMA Europe Conference: Helsinki–continued



second camp, the market has already issued its verdict: London is the place to be.

This begs the question; it is all very well for a London court to authorize the use of scheme over German and Spanish companies, but who is to say that the courts in Germany and Spain will take a blind bit of notice of such schemes?

A key test case is at this moment making its way through the German civil courts appeals process. Ironically, it is an English scheme proposed for a solvent German insurance company. Whether this particular scheme is accepted by the German appeals court or not will form a powerful precedent for this version of forum-shopping, practitioners believe.

How many German businesses are waiting for this decision before opting for an English scheme? According to one German lawyer at the conference, German bankers are predict-ing between 40 and 90 German companies will “go to London” if the appeal court gives the green light.

Of course, the law means very different things in different parts of the world. Alexander Yero-feyev of Ernst & Young in Moscow captured the audience’s attention when he observed: “We have laws, but they’re not mandatory.”

“Where will my work come from?”

My own panel, “A new paradigm in restructur-ing”, aimed to answer an important question for attendees: Where will my work come from?

Fabrice Keller of Duff & Phelps in Paris, and president of TMA France, started his talk by recounting something he said he had never seen before, “A bank refused to receive a check from an investor because it would have trig-gered a provisioning.”

This was a constant theme in the discussion, banks refusing to provision adequately and not wanting to agree to turnarounds or restruc-turings for the same reason. “Private equity houses don’t want restructurings at all,” he added. “This is the calm before the storm.” When this storm of insolvency and turnaround

work may break was a bone of contention on the panel. Keller reckoned it would break in France “within six months.”

Dr. Volker Beissenhirtz of Schultze & Braun in Germany opted for “when interest rates rise one percent.” Adrian Thery from Garrigues in Spain commented: “Banks won’t want to get rid of assets until they have recapitalized their balance sheets, and this will take many years.” David Lovett, European head of restructuring at AlixPartners, said, “It’s a case of when inter-est rates go up, not if. Even a small rise will have a big impact on many companies,” added Lovett.

Meanwhile, Keller sees in France a shift to operational turnaround, particularly cash management. He has also witnessed a strange phenomenon. The French state set up a number of strategic investment funds in 2008 to support industry in the aftermath of the financial crisis. This had the perverse effect of sucking out all activity from the non-state marketplace. “These funds were like vacuum cleaners, sucking up all the deals,” says Keller. “In 2010 alone they did 400 deals. But now the government no longer has the funds to contin-ue this. So it will let the private sector back in.”

Dr. Volker Beissenhirtz of Schultze & Braun, who splits his time between Berlin and Lon-don, described a similar experience to the low levels of restructuring and turnaround in the UK. There was mezzanine finance coming due to the tune of 4.9 billion euro in Germany this spring, and yet no sign of this generating turnaround or restructuring work.

Not only has there been no impact on turn-around work, but mezzanine investors also report they have been repaid on time. “So where is the money coming from?” Beissen-hirtz asked rhetorically.

The new German insolvency law due to be enacted in 2012 might be a purveyor of a “new paradigm,” he added. It holds out the promise of earlier creditor involvement, debt-for-equity swaps and other moves towards a more “user-friendly” system. Beissenhirtz accepted


David Lovett, European head of restructuring, AlixPartners, UK

“The UK restructuring and turnaround market is very quiet. There is far more activity in other markets we are involved in, such as the Middle East.”

Fabrice Keller, Duff & Phelps, France, and president of TMA France

“Private equity houses don’t want restructurings at all. This is the calm before the storm.”



that legal reform is important for Germany, since a number of big German companies have recently “gone to London” for restructurings, such as Rodenstock. They have used the Eng-lish law Scheme of Arrangement, a flexible tool derived from the Companies Act rather than insolvency legislation. The scheme “seems to be the way forward,” says Beissenhirtz.

While there is a court case pending in Ger-many on whether English Schemes of German companies will be recognized in Germany, they remain the default mechanism of choice. And even when the new German legislation comes in, he says, it will take two to three years of use to “bed it down.”

“The banks do not have the human resources to work on every distressed situation,” Thery told the conference. “We are seeing a lot of liquidations. We are also seeing third-party purchases and auctions by banks.” There are also loan-to-own options, he said, in which owners of distressed businesses have been forced by bank inaction to go out and find a new buyer for the bank’s debt. “Everything is going in slow motion,” said Thery. “While the banks are in crisis, I fear this situation will continue.”

Meanwhile Thery described Spain’s new legislation, which should reduce the need for English law Schemes of Arrangement, in the shape of a “refinancing agreement.” It will be enacted in October, he said, but might be delayed by elections. Perhaps it is more like the UK’s Corporate Voluntary Arrangement (CVA), he added. “Our legislators are thinking also about other pre-insolvency schemes,” said Thery. “Our legislative body is quite aware that insolvency instruments are not providing answers to our problems.” Thery said many operational turnaround and refinancings are under way in Spain and some refinancings “might be for the second or third time round. So there is a lot of work for practitioners,” he concluded, “but not as much as expected.”

David Lovett, European head of restructuring at AlixPartners, said the UK restructuring and

turnaround market was “very quiet. There is far more activity in other markets we are involved in, such as the Middle East.” The big problem in Europe at the moment, said Lovett, was the impact of weak financial institutions on the rest of the economy. “It’s a big concern of turnaround practitioners,” said Lovett. “It’s very difficult for companies to get a rational view from banks.”

Banks are worried at the moment about all sorts of issues: What are their core and non-core operations, for instance? How is their relationship with the bank regulators and government working out? They might have bal-ance sheet issues or want to exit a particular sector, he observed.

Any one of myriad internal factors like these could impact on the way they answer a query from a particular debtor, said Lovett, and their answer may have nothing to do with the debtor’s viability or otherwise. “We spend a lot of time at the moment advising companies on what they should do to avoid becoming a victim,” he said.

The last word should be left to Jouko Karvin-en, CEO of Storaenso, one of the largest forest-ry companies in the world. Karvinen was sent in to turn around the giant, and has ruthlessly sold off forests and cut out underperform-ing subsidiaries, much to the horror of many Finnish commentators. The company is now back to financial health and heading toward better things, after many years of painstaking turnaround work. Then he was asked, “Did you use any external turnaround advisers? “No,” he replied, at which the audience let out an au-dible sigh of disappointment. That was a fitting conclusion for the conference—good work will always be difficult to find. •

John Willcock is editor of Global Turnaround magazine, www.globalturnaround.com.


Adrian Thery, partner, Garrigues, Spain

“The problem in Spain is not so much what the banks are doing, rather what the banks are not doing.”

Dr. Volker Beissenhirtz, lawyer, Schultze & Braun, Germany

“Everyone has been predicting this mezzanine program would need refinancing, everyone has been writing about it, but now the time has arrived and nothing has happened.”



Scenes from TMA Europe Conference at the Hilton Helsinki Kalastajatorppa hotel near the Gulf of Finland.


Reijo Järvinen,TMA Finland President, and Pekka Malmberg, TMA Finland, make a point.

Attendees take advantage of scenic views to talk about business opportunities.

From left, Celine Domenget, Bremond & Associes, Enrica Ghia, Ghia Law Firm and John Pennie, Dickinson Dees LLP, on the panel “Update on cross-border legal issues.”

Networking for conference goers spills over into the outdoors.

TMA Chairperson Lisa Poulin speaks to TMA France Chapter President Fabrice Keller.



“The Helsinki Conference was simply terrific on every level. In addition to the networking opportunities across multiple national borders, the educational panels made obvious to me that the restructuring world, like other aspects of the business world generally, is getting smaller and smaller. With domestic U.S. businesses increasingly more intertwined internationally in the supply chain, the importance of understanding the cross border insolvency and related issues becomes more paramount each year.”

Ronald R. Sussman, TMA Corporate Secretary

Steven Miller, Mayer Brown, Bangkok Thailand and John Marsden, Mayer Brown, Hong Kong, enjoy a reception at the TMA Europe Conference.

Conference attendees, including, foreground, Christiane Hutchinson, TMA Ireland president, Gesche Möllerand David Mitchell, BM&T, rear, listen to a panel.


Tyrone Courtman, Cooper Parry LLP, and keynote speaker, Donal O’Mahony, global strategist at Davy Capital Markets, speak on panel.

Erkki Niskanen, left, and Ane Ahnger, center, both on the TMA Finland board, and Ronald Sussman, TMA corporate secretary, enjoy networking.



In the proposed refashioning of Ger-many’s insolvency law, creditors and debtors would hold more sway when a

company makes it known it’s on the verge of trouble. Frank Nikolaus, longtime president of the TMA Germany Chapter, likens it to a sea change. Learn more about the proposed reforms, the chapter and Frank Nikolaus, founder of Nikolaus & Co., which specializes in financial restructuring and special situations investments and has offices in Düsseldorf and London.

1. What distinguishes your chapter in membership makeup?

We have an “elite” chapter. In order to gain the necessary gravitas vis-à-vis the institutions and, in particular, a more or less powerful association of insolvency practitioners, it was the strong intention of the founders of TMA Germany to assemble preeminent restructur-ing professionals in the first place to establish the new chapter. This fact was supported at that time by the license system newly imple-mented by TMA in 2005, which allowed us to create our own application criteria for poten-tial new members. We now have more than 200 members.

2. What is the principal way Germany’s insolvency process differs from the restructuring process in the U.S.?

Germany’s process differs in two significant ways:

(i) The current system basically supports the “strong administration” scheme. Management completely loses power of disposition. A scheme comparable to “debtor-in-possession” does exist but has no practical impact due to various restric-tions. The administrator, who is to hold extensive power, is selected quite arbitrarily by a judge without the participants (debtor, creditors) being able to influence this ap-pointment process formally.

(ii) The regular and by far most frequently imple-mented way of restructur-ing an insolvent business is to sell it in a process, equivalent to a 363 sale in the U.S., and liquidate the entity.

3. Are legislative or judicial changes being considered that turnaround professionals outside your region need to be aware of?

Yes, indeed. We are in the midst of a legislative process, with a governmental draft already within the responsible legislative bodies in preparation for the parliamentary process, which, to put it bluntly, might change the world. In a nutshell — we will see “light touch” proceedings with the debtor-in-possession prevailing. The administrator, if not only in the role of a supervisor, will be selected by the debtor and the creditors, with the court sanc-tioning this vote if no major arguments (con-flicts, obvious incapability etc.) speak against this person. Furthermore, the insolvency plan process is strengthened by a number of legisla-tive changes.

TMA Germany has played a very important role during past years when an expert group from our membership base stipulated those changes in the first place, formulated rule changes, presented those proposals to the ministerial bodies and took part in various hearings and discussions with politicians and office people.

4. How did you begin your career in the turnaround industry?

In 1993 I founded Depping Nikolaus & Part-ner and successfully worked as an insolvency administrator for many years. Later I focused on financial restructuring and distressed debt with Nikolaus & Co. LLP.

SEVEN QUESTIONSby Frank Nikolaus, Germany

Frank Nikolaus, TMA member since 2000, chapter president since 2006



5. Have you participated in notable cases?

Yes. Callahan, WCM/IVG, Schefenacker, SAF Holland GmbH, Cinterion, TeleColumbus Group, Pfleiderer AG, are examples.

6. Can you recount a favorite restructuring case?

Generally there is no specific favorite case of mine. Actually I like the diversity and different shaping of the numerous significant restruc-

Nearly 200 delegates from across the Asia-Pacific region assembled at The Grand Hotel in Taipei, April 13 and

14, for the inaugural TMA Asia-Pacific confer-ence hosted by TMA Taiwan. The delegates were welcomed by Susan Chang, chairperson of both TMA Taiwan and Bank of Taiwan, and Lisa M. Poulin, CTP, chairperson of TMA In-terntational who later gave a keynote address on the impact of globalization on corporate restructuring.

Seven Questions–continued

turing cases I worked on. I am satisfied with a case when we have successfully restructured, preserved jobs and saved the existence of a company.

7. Do you have a favorite quote or motto that anchors you as you work?

No, not really. The aims I achieve with my work do satisfy me; I don’t need any kind of motivation motto. •

TMA Asia Pacific Conference: TaipeiRescuing Troubled Business

The conference theme was “Rescuing Troubled Business” and was held against the backdrop of the earthquake and tsunami in Japan the previous month. The conference welcomed a group from TMA Japan and heard about their initiative to support businesses affected by the disaster in a pro bono TMAssist program, similar to that undertaken by TMA International fol-lowing Hurricanes Katrina and Rita in New Orleans and other parts of the Gulf Coast.

The conference focused on legislative industry process developments in the region and op-portunities for turnaround and restructuring professionals and distressed investors. Speak-ers and panelists represented eight countries. Much attention was on China, the region’s powerhouse, and on recent improvements to that country’s legislation. Shu-Guang-Li, a pro-fessor at China University of Political Science and Law, Beijing and co-author of much of China’s new legislation, was a prominent pan-elist on Chinese restructuring issues. Other panels covered jurisdictional comparisons

Conference attendees fill nearly all seats at The Grand Hotel in Taipei.

Alan Tilley, TMA vice president of international relations, Thomas Yeh, vice president of TMA-Taiwan, Alex Ying, managing director, Carlyle Asia, in Hong Kong, Lisa Poulin, TMA chairperson, and Yung-San Lee, chairperson of Deu Tron Educational Foundation, at the TMA Asia-Pacific Conference.



across the region and opportunities in areas such as Vietnam, and the emerging distressed debt trading market in Hong Kong, Australia and Singapore.

Before the conference, TMA chapter presidents in the region, Australia, Japan and Taiwan, together with representatives from chapters in formation in Hong Kong/China and Singapore/ASEAN territories, met to discuss regional cooperation in TMA development. Initiatives to develop a regional president and establish secretariat support were tabled for consider-ation by TMA International. A venue was set for the next conference, Sydney, in October 2012. Attendees also discussed the concept of established chapters helping new chapters evolve from satellite to full chapters. Australia will assist New Zealand, and Hong Kong will serve to reach into China in this way.

The conference concluded with thanks to TMA Taiwan President Dar-Yeh Hwang and Carrie Chan for the efficient arrangements and smooth running of the conference, which has served as an excellent reminder of the role TMA can play in the development of turnaround industry best practice in this fast-growing region. •

TMA Asia Pacific Conference: Taipei–continued

From left to right, Adrian Loader, president TMA Australia; Geoff Sutherland, foreign legal counsel for Vision & Associates in Vietnam and Matthew Wilde, partner with PricewaterhouseCoopers in Australia, were panelists in a discussion about the economies and turnaround environment of regional countries.

Yoshinobu Konomi, TMA Japan president and professor at Keio University Graduate School of Business Administration, addresses audience.

John Lees, director of John Lees Associates, and Dar-Yeh Hwang, president of TMA Taiwan and professor at Taiwan University, enjoy a relaxed moment.

Susan Chang, chairperson of both TMA-Taiwan and Bank of Taiwan, discusses the restructuring of the industry value chain in the Greater China region.



Japanese professionals, among others, join Derek Lai, Asia leader for Deloitte Reorganisation Services in Hong Kong, at the conference banquet on Thursday.

A festive atmosphere greets conference attendees after a day’s worth of educational panels.

CY Huang, chairperson of Taiwan Mergers & Acquisitions and the Private Equity Council, gives a keynote speech at the conference.

Alan Tilley and Lisa Poulin, TMA chairperson, make a toast at the welcome reception.

TMA Asia Pacific Conference: Taipei–continued


NEWSTMA International TMA Australia’s

Grand SlamChapter named first International Chapter of the Year

Active,” “vibrant,” and “in a position of strength” are words the Australia TMA Chapter uses to portray its perfor-

mance as a forum for restructuring industry professionals whose practice is materially different than that in the U.S.

They are hardly empty words for the 2010 TMA International Chapter of the Year. The 341-member chapter fans out its work across four state committees, in New South Wales, Queensland, Western Australia, and Victoria, and draws everyone to the fold for its an-nual national conference and awards dinner honoring Turnaround of the Year, Lifetime Service, and CTP Top Student winners. Last year marked the chapter’s seventh annual conference, and its award ceremony topped 330 attendees.

Educational programs in one state went over so well that willing speakers like New York

University finance professor Edward Altman and Adrian Dietz, a partner with Skadden, Arps, Slate, Meagher & Flom, made additional stops to speak to TMA audiences in different states. Altman waxed on the global financial crisis and credit markets, while Dietz sized up the effectiveness of Chapter 11 versus volun-tary administration in turnarounds. Unlike in the U.S., Australia’s insolvency procedures tilt toward the creditor, not the debtor, and courts play a minor role in the restructuring process.

To reverse a lower membership cohort of bankers and financiers, members from state committees invited key players to TMA events and encouraged 30 to join. That increased representation from the financial sector by 51 percent over 2009. The chapter now plans to recruit more professionals from the opera-tional side of the turnaround business.

“

The Australia Chapter’s Sportsman’s Lunch draws a crowd with generous pockets; the event raised more than $200,000 for Special Olympics Australia.



“Western Australia hosts a number of emerging and established mining and resources, as well as other primary and related, enterprises. Engaged in growth, the ordinary business cycle of most of these enterprises will at some point involve a reallocation of capital or operational needs, often within a turnaround envi-ronment, whether this be in the nature of a distressed or other special situation. Increasingly, business recognises the need to bring seasoned turnaround manage-ment, advisory and financial teams into the enterprises to deal with these changing environments. These people are our mem-

bers and future members. The growth of the TMA message in Western Australia is most obvious in the number of non-forced turnaround success stories in the market, revitalized enterprises taking the gain of working with these teams to improve balance sheet, management structures and financial performance. It is pleasing to see the international community recognize this sense of revitalization of business within Australia by this award.”

– Cameron Belyea, TMA Western Australia state chairman and partner, Clayton Utz

TMA Australia’s recognition reflects well on the committee leaders that help operations run smoothly. Here, they express their own thoughts about the honor.

TMA Australia–continued

“TMA Australia is the largest TMA chapter outside of the U.S.,” Chapter President Adrian Loader said in the 2011 first-quarter edition of TMA International News. “Over the last two years membership has grown by over 50 per-cent and encompasses professionals practicing in turnaround management, law, insolvency, accounting, management consultancy, bank-ing, finance, and private equity.

At both local and federal levels, the chapter achieved visibility last year. Results from its first survey of stakeholders associated with distressed companies landed coverage by Business Review Weekly magazine in the fall. Chapter members also formally aired views on insolvency policy, joining the Law Council of Australia and the Insolvency Practitioners Association of Australia.

The chapter offered its first CTP course based on TMA International’s core curriculum in finance and accounting, management, and law,

and more than 60 registrants took at least one course during the year. It introduced a three-year sponsorship program and notched mar-quee names, including Deloitte and Deutsche Bank, for last year’s national events.

The Australia Chapter made its mark on a wid-er playing field, as well. A longtime contributor to Special Olympics Australia (SO), the chapter raised just over $200,000 for the nonprofit organization that encourages people with intellectual disabilities to take up and excel in sports. Driving the fundraising is the Australia TMA Sportsman’s Lunch, a crowd-pleaser that attracted more than 1,100 business profession-als. The chapter organized four of these last year, including a first outing in Western Aus-tralia, and ramped up total contributions over five years to just under the $1 million mark. SO earmarks those funds for regional programs and outreach to future athletes living in poor and remote communities.



“The award provides well-deserved recognition of the significant effort made by the many members that make up TMA in Queensland to promote turnaround as a genuine and legitimate alternative to corporate insolvency in an environ-ment where turnaround management in Queensland had little to no recognition 10 years ago.

“The international acknowledgement will serve to support the continued promotion of our members work in Queensland as they continue to assist businesses through the difficult economic times being expe-rienced by many due to recent natural disasters in our region.

– Glenn Caligaris, TMA Queensland state chairman and principal, Mc-Innes Wilson Lawyers

“So much of the practice in turnaround and distress is fraught with stress and failure. To turn a company around it must be in dire straights and in need of fixing. It must be close to death. To succeed entails both perspiration and inspiration. There is so much pleasure in bringing something back to life. That is what the TMA at its heart is all about. An award is the icing on the cake.

It is recognition that you have succeeded where so many others could have failed. Winners take genuine and deserved pride in the awards. It means so much to both the “patient” and the “corporate doctors.”

– Michael Sloan, TMA Australia Victo-ria State Chairman and Partner, Blake Dawson •

TMA Australia President Adrian Loader presents CTP Top Student Award to Suelen McCallum, from the University of Technology, Sydney.

Business Review Weekly magazine publishes results from the TMA Australia Chapter’s first survey of regional trends in the turnaround industry.

TMA Australia–continued


NEWSTMA International News Briefs

Hilco opens office in Singapore

Hilco Trading LLC announced the opening of an office in Singapore, its first to serve the Asia-Pacific and greater China region. Principal operations will center on HilcoBid, the online auction and asset redeployment platform launched by Hilco in North America earlier in 2011. Hilco Appraisal Services will also establish Asia-Pacific and greater China operations in the new office. Services will be provided under the guidance and direction of Vincent Wee, who has worked in the industry more than 30 years. Wee was managing direc-tor of EquipNet Asia Pacific and, prior thereto, president of DoveBid Asia Pacific, the regional predecessor of GoIndustry DoveBid.

China auto market to grow up to 15% annually through 2016

Despite a recent slowdown in light-vehicle sales in China, industry experts expect sales growth of up to 15% per year between now and 2016, according to an AlixPartners study. The 2011 China Automotive Outlook, conducted for the fourth consecutive year by the firm, ana-lyzed data gathered from more than 40 senior executives from both foreign and domestic players in China’s automaker and auto-supply sectors, as well as data from extensive research of the industry in China. The survey was con-ducted in cooperation with both the American and European Chambers of Commerce in Shanghai. •

The cost premium of investing in Brazil is reducing to a more attractive risk-return balance in the eye of a wider

range of foreign investors. Practical aspects supporting this reality should be observed by capital investors or industry players who have not yet grasped the opportunity of investing in the South American giant.

Country recovery: improved institutions are attracting foreigners

Brazil’s economy is growing steadily and consistently. A per annum GDP average growth of nearly 6% is expected for the next five years. This is merited by an impressive improvement in Brazilian social-political institutions and macroeconomic fundamentals. Four examples deserve to be mentioned.

Weighing the Economic ScaleKeynote on Brazil: Reaping from Country and Corporate Recovery

By Eduardo Lemos, Brazil

Firstly, the economics-driven Central Bank and the politics-oriented National Treasury Secretariat (STN) have streamlined between them non-overlapping objectives and imple-mented world-class, debt-management policies and predictable controls for inflation, interest and exchange rates. As a result of this, by 2014 projected public debt will be 27.8% of GDP and public nominal deficit will be zeroed, both down from 60.4% (2002) and 5.2% (2003), respectively. The Brazilian currency, the real, has been continuously appreciating: 136% since President Lula’s first term election and 13.5% since January 2010. The country’s basic interest rate (SELIC) started 2010 at 10.75% and its inflation rate kept below 6%, both down from 27% and 17%, respectively, when Lula entered office in 2003.



Secondly, the central government’s social policies are upgrading consumer spending by the 100 million active consumers market (total population is 192 million). Unemployment and poverty levels are at their lowest: 6.1% and 16 million people, respectively, down from 12.3% (2004) and 28.1 million (2003). Credit-GDP ratio, now 49.5%, has been systematically ris-ing from 25% in 2003 and is expected to reach 70% in 2014. The Growth Accelerating Pact set forth by former minister of energy, then chief of staff, now newly installed President Ms. Dilma Rousseff, is increasing public and public-private investment in general infra-structure. Brazil’s investment rate, which was only 14.7% in 2003, is currently 18.9% and the government is pushing it to 22.4% by 2014.

Thirdly, the consolidation of capital and industrial regulations through Brazil’s SEC-equivalent (CVM), antitrust and market-sector authorities are enhancing ever-growing cor-porate governance and transparency. Seventy percent of Brazilian IPO funding comes from abroad and foreign portfolio investment grew by 150% in 2010.

Fourthly, non-listed and small and medium-sized companies (SME) now, too, follow IFRS-compliant accounting standards and issue electronic, IRS integrated, invoices. Registration and fiscal bureaucracy have been simplified for these companies that in fact represent the best investment opportunities in Brazil. Corporate governance and professional management cultures are being extended to them, or this is the goal, by the NACD-twinned Brazilian Institute of Corporate Governance (IBGC), which is about to release a much expected SME corporate governance guide to stimulate their perpetuation and funding.

Corporate recovery in Brazil: understanding the environment

Focusing now more specifically on investment and the turnaround of businesses in distress, it is necessary to consider some key practical aspects of the Brazilian growing turnaround practice and the five-year-old, U.S. Chapter

11-style, Corporate Bankruptcy and Restruc-turing Law (CBRL).

The use of in-court corporate recovery in Bra-zil is still weak. For example, filings in the U.S. are around twentyfold greater whereas there are only about twenty percent more registered firms in the U.S. than in Brazil. Furthermore, Brazilian filings are disproportionately more for bankruptcy than for reorganization proce-dures (this is even more in the case of SMEs) and entire company sales as going concerns are non-existent. So there are many latent turnaround opportunities to exploit.

Although statistics are still unreliable for the young CBRL, on-the-ground experience and debates developing in the Brazilian affiliate of the Turnaround Management Association and in the Brazilian Institute of Corporate Recov-ery Studies hint at some important aspects for foreign investors to exploit, and beware of. They are briefly portrayed in the sequence: the turnaround plan, pre-packaged organization, DIP finance and succession liability.

The turnaround plan

Business recovery plans in Brazil are, in gen-eral, a mandatory formal resort for troubled companies mainly to settle debt re-profiling in court. Only very few of these plans effec-tively challenge the entrepreneurial essence of the underlying business and value chain by questioning product-market positioning and critical process improvements deeply enough. Hence, Brazilian turnaround plans, let alone their execution, rarely address and resolve the business fundamentals related to profitability, cash flow and sustainability.

Brazilian trustees and judges are limited to ad-hering to CBRL procedures, which hardly ever confront the plan, a responsibility reserved for creditors according to the legal code. But so far creditors have focused on their individual payment schedule, seldom tackling the plan from business or industry perspectives. Credit committee representatives, figures created by the CBRL, are also reluctant to assume such



responsibility. Conditions and vetoes they authorize could strike back at them in the form of personal liabilities inflicted upon them by angry counterpart stakeholders suing them in ancillary court procedures.

Pre-packaged organization

The Brazilian turnaround culture has yet to mature. In general, companies showing crisis symptoms admit the need for recovery only when it is too late, and when they are already heading to court, and only if they are big enough to shoulder the expense associated with the procedure obligations and profession-al counseling. The “extra judicial” approach imbedded in the CBRL, which compared to the U.S. pre-packed organization provides a leaner procedure for stakeholder negotiation that only needs to be court-stamped. But it is rarely adopted.

It is true that the “extra judicial” solution needs legislative improvement as the indebted company can only apply it to unsecured creditors, and its procedure is based on weak foundations, left unprotected by reason of a lack of moratorium and has the potential to go straight into bankruptcy.

But even if the Brazilian legislation were a “pre-pack” enabler, this approach would rarely be followed, as the culture for early turn-around and for constructive and transparent creditor communication is underdeveloped in the country, in addition to the fact that banks themselves lack the right attitude, handcuffed by the country’s financial system and conser-vative norms —but more on this later.

“Pre-pack” mediation should also be stimu-lated in Brazil for another reason, CBRL’s Achilles’ heel is the General Creditors Assem-bly (AGC). The AGC rigidly institutionalizes what should really happen swiftly beforehand on a multiparty negotiation table facilitated by the trustee. Instead, the plan is presented and debated by the creditors in a bureaucratic and overwhelmingly extensive assembly meet-ing, with an intimidating “go/no-go” attitude,

moderated by the trustee acting as a mere court-based oversight. AGCs therefore should be avoided or used simply to initiate the plan, which should be really negotiated upfront with all stakeholders, possibly a daunting task especially when credit is spread among a vast number of stakeholders.

DIP finance

Although the CBRL in theory protects new-money priority, the practice of debtor in possession financing has yet to affirm itself in Brazil. There, the distress finance primary and secondary market has yet to structure itself too. It is a catch-22 situation, as one depends on the other. With the lack of specialized in-vestors to provide new turnaround money, the option for Brazilian companies in crisis—re-membering that these typically recognize the need for restructuring when it is too late (i.e. with all assets already pledged and strategic alternatives highly compromised) - has been to get their new money from their old credi-tors who hence fight to “roll up” their debts and self-prime themselves. This mixes up old and new money priorities and sets up a fierce battlefield among stakeholders concentrating on a workout, but not focusing on overall busi-ness recovery and value generation.

A big issue related to strict central bank asset protection policies for financial institutions is that banks must provision for their bad debts with companies in CHI procedures, all credit of which is classified as high-risk irrespective of DIP priority for new money. According to them, CBRL rules are not trustworthy and with the time and money spent on the proce-dure they might as well collect what’s left and lend elsewhere. It is difficult to argue they are wrong in such a credit-thirsty and highly priced market. Therefore, banks have little incentive for DIP restructuring, and tend to come to the table with a bankruptcy mentality.

Another point hindering DIP finance is “extra-concourse” credits, which CBRL exempts from being subject to the DIP recovery plan, and which therefore are enforceable and can



trigger bankruptcy directly. “Extra-concourse” creditors for CBRL are issuers of letters of credit for export, fiduciary owners of assets, including receivables, and financial lessors. In practice, creditors are migrating to “extra-concourse” lines of credit. With this, Brazil-ian companies filing for recovery often find themselves hostages trapped between ‘extra-concourse’ and asset-backed creditors.

Succession liability

“Succession,” also known as “solidarity re-sponsibility inheritance” in Brazil, can lead to a deconsideration of investors’ limited liability, especially for, but not restricted to, those in position of shareholding control or administra-tion. In Brazil, this issue can be quite tricky. Fiscal and labor claims, which run separately from and often override corporate recovery procedures, can attack shareholders and ad-ministrators, irrespective of whether they are there to help rescue the company and were not involved with the issue originating the claim.

Conclusion

Brazil still has to embrace higher investment-grade levels. Nonetheless, its current business environment is becoming receptive even for non-listed targets in which foreign funds and companies can approach leveraging their own money and expertise.

Seasoned investors, in particular those with a global footprint with synergy potential, are prone to add and reap value by planning, negotiating and executing proper turnarounds with appropriate governance, preferably out of court using their “pre-pack” experience. They can thus help mature the Brazilian early turnaround culture and make profits in the process.

Active specialized creditors are also welcome in late, in-court turnaround opportunities in Brazil. But only if there are unpledged assets available to secure their new money and if

there are no fiscal or labor claims or contin-gencies that they would have to inherit.

In any case, foreign investors and strategic partners should both have legal counsel to represent their interests, and locally estab-lished managers to integrate local operations to their own corporate culture—and Brazilian turnaround managers are increasing in both number and quality. •

Eduardo Lemos is managing partner of Perform Management & Consulting, São Paulo, Brazil. This article was first published in Issue 2, Volume 8 of International Corporate Rescue and is reprinted with permission of Chase Cambria Publishing. www.chasecambria.com.



News from TMA Headquarters

International Members Receive Special Discounted Fees for 2011 TMA Annual Convention

New this year, TMA is offering significantly discounted 2011 TMA Annual Convention registration fees of only $745 for international members. Take advantage of this special pricing to attend this year’s conference, taking place October 25-27 at the Hilton San Diego Bayfront in beautiful San Diego, California.

Highlighting three days of valuable education, networking and deal-making opportunities, is keynote speaker, Biz Stone, co-founder of Twit-ter. In addition to helping establish the multi-billion dollar social networking site, Stone also is an advisor to several companies and organizations ranging from tiny startups and non-profits to publicly traded international companies.

Stone will be joined by the biggest names in corporate restructuring and turnaround man-agement in San Diego. In addition to learning about the latest industry topics and trends, the TMA Annual Convention also provides countless opportunities to meet with potential business partners during networking events and in the exhibit hall.

Beginning with the International Reception on October 25, the opening night of the confer-ence provides a great opportunity to establish new business contacts or get re-acquainted with colleagues. Following the International Reception are the Wine & Cheese Reception in the Exhibit Hall and the Opening Reception at the USS Midway, the longest-serving U.S.

Navy carrier of the 20th century and once the largest ship in the world.

Both the USS Midway and Hilton San Diego Bayfront are conveniently situated in down-town San Diego, bordering the beautiful San Diego Bay one side and many great restau-rants, nightspots, shops and fun activities on the other. With perfect weather and attractions for all ages and interests, San Diego is an ideal city for combining business and vacation. Consider extending your stay when you start making your plans at turnaround.org.

Results from Latest TMA Trend Watch Survey

“Amend and extend” financing arrangements and “loan-to-own” plays are a few trends observed by TMA members who completed the May 2011 Trend Watch Survey on credit avail-ability. About 60 percent of TMA members surveyed in May expect so-called “amend and extend” financing arrangements to continue at the same pace as 2010, while nearly 20 percent foresee a swifter pace for those transactions in 2011.

“With interest rates at such historically low levels, companies can extend maturities and only have to deal with the annual interest coverage,” said William K. Lenhart, a partner in the business restructuring services unit at BDO Consulting in New York and a certified turnaround professional (CTP). “The unknown is,” Lenhart said, “if the economy does not improve or the company does not restructure its operations to become profitable in the ‘new normal’, what will happen when the principal becomes due and the refinancing option is no longer available at low rates?” •

Do you have a topic for a TMA survey or poll focusing specifically on Europe or the Asia-Pacific region? Send ideas to [email protected].

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