The Gulf enjoyed a sustained level of development and growth over the last 15 years. This development has been a result of significant amounts of sovereign and private capital being deployed across sectors.
The pandemic has had unprecedented ramifications not only to the global healthcare system but to the world economy as well, and requiring significant resources to repair. As policymakers focus on solutions, the economic stress will inevitably lead to a spike in the need to restructure creditor obligations and insolvencies across the GCC.
Although the region has made some significant strides in enacting bankruptcy legislation, it is fair to say that these are yet to be tested adequately and there is a preference to consensual restructuring. Although there are inherent differences between organizations, some common themes that enable successful restructuring are:
It is essential for the leaders of an organization to first accept the business needs to deal with the strain, and that structural solutions will need to be sought to ensure survival. This is arguably one of the most important elements of a successful restructuring, which enables an open - and effective - thought process.
Key stakeholders need to understand their current position and alternatives, because as an organization and as individuals charged with fiduciary responsibilities (under the bankruptcy legislation, there are implications for directors). It is important to evaluate the operational, legal and financial position as well as potential ramifications under a number of scenarios. Do this as dispassionately as possible, using external resources if necessary.
Business planning and sensitivity analysis
Conducting detailed planning that considers all aspects of the business is vital. The plan should be debated and sensitized carefully to ensure that key elements are captured and understood with contingency planning in place.
Consensual restructuring requires the buy in of reditors and other stakeholders – providing adequate information early on is key. Some argue that due to the high flight risk, which is unique to this region, bankers are reluctant to support businesses in a “workout”, but instead will look to seize any available security immediately. This fear in turn leads to less transparency from the company.
If issues and potential solutions are planned and communicated early on, the level of comfort and potential of the creditor to support the restructuring proposals will increase.
It is equally necessary that key stakeholders are included in planning and execution of a restructuring plan. A well-articulated plan that has buy-in enables management to stand behind and implement the plan.
Executing the plan and ensuring that the business is able to work through the issues requires staying on course. And if needed, able to absorb shocks. Adequate time and organizational effort should be dedicated to constant review, follow up and update of the restructuring.
Although the use of legislation that provides a fair framework within which the rights of stakeholders are protected will hopefully be continue to evolve, companies need to dispassionately accept, prepare, communicate and execute solutions to achieve a successful consensual restructuring.
- Uday Bhasin is a Partner at Tradeways.