Vol 3 (2006) - Issue 2

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European Turnarounds and the Chief Restructuring Officer: Delivering Value for Investors through Strategic Execution

Evolving marketplace
Over the past five years, the business of corporate turnarounds has continued to evolve in Europe. An influx of US-based restructuring firms has penetrated the continent from Stockholm to Stuttgart, hiring the best local talent to help troubled and healthy companies alike rejuvenate their operations. Before the arrival of turnaround experts, the absence of a Chapter 11 equivalent in the UK and across Europe created the perception that there were few alternatives to the value destruction that often accompanied an insolvency process. The concept of using a Chief Restructuring Officer (‘CRO’) to resolve issues and protect and enhance value simply did not exist.
Fast forward to today: corporate Europe is waking up to the options available when faced with lacklustre performance. Troubled businesses – whether publicly listed, privately held or governmental – are benefiting from viable operational and financial rescue plans that can significantly add value. Moreover, legal frameworks in many European jurisdictions are gradually reforming,bringing them more in line with US-style corporate workouts that are underpinned by the philosophy of gaining a ‘second chance.’ In January 2006, a bill enacted by the French Parliament in July 2005 took effect. This bill provides a version of US-style Chapter 11 that, for the first time, enables a French company to file for bankruptcy and seek court protection against creditors outside the realm of insolvency. As a culture of renewal takes hold, companies will be granted even greater protection. This, in turn, will open the door to increasing opportunities for turnaround professionals and, critically, help buy time to develop and execute timely revival plans that can preserve jobs, reduce debt, improve margins, and, ultimately, deliver greater value for a wider array of investors.
The rise of the CRO on the continent may prove to be one of the most beneficial legacies of the US-style turnaround platform in Europe. In the wake of Parmalat, Enron and other corporate scandals, financial creditors are more readily calling for the aid of a CRO when a company is on the threshold of insolvency. However, the battle cry issued from seasoned turnaround specialists is to act early and work in conjunction with management to tackle the underlying operational issues before financial creditors take action.