INTERNATIONAL ARBITRATION 1/3LY
Given the jurisdictions I mentioned earlier, the finding of likely wrong doing presentsmajor challenges for office holders and, therefore, issues for the creditors: it’s especially challenging to prioritise investigations and claims, particularlywhen theremight also be regulators and law enforcement bodies in different jurisdictions becoming involved and placing information demands on a shrinking team. It is also often the case that the wider knowledge of the allegedwrong doers can be useful to the recovery of legitimate assets. In long established large businesses, business practices of old are often entrenched and implicitly accepted even to the detriment of the business. Individual deals are high value and deal partnersmay be complicit in side deals. We have seen instances where there is limited awareness that regulations or laws have been breached. Nevertheless, it is frequently the case that key individuals have removed themselves to difficult to reach jurisdictions. ST EWART So there’s greater incidence of fraud? DI ANE It can certainly seem that way. Youmay be based in a broadly honest regime but you can’t avoid having to deal with cross-border transactions. And, you know, fraud is very topical isn’t it?What with the Anti-Corruption Summit that took place in London thisMay and David Cameron’s announcement on the need for foreign companies that own properties in the UK to declare their assets in a public register.
Creditors could be tied up for years if they pursue assets andmonies in corrupt regimes, but equally they seemmore determined than ever to show legitimate cause and apply political pressure. Of course, somemight say that considering the risk of fraud is really an investment due diligence point; yet whilst peoplemight go into these situations with their eyes open, saying, “Well, we’re quite happy to take amassive risk in the portfolio” it never feels like that when it goes wrong. ST EWART This remindsme of the financial crash in 2008when everyone actually stopped and realised that the documents they had didn’t really fit the purpose, but it hadn’t been looked at properly for years because no-one really thought it was ever going to go bad. You look at these situations nowand a lot of this is about how the normal contractual documents between the parties are not really fit for purpose when it comes to an insolvency situation. DI ANE No, andwhat I think is interesting in an insolvency situation is that the lawyers and accountants aremuchmore likely to be engaged in something deeply commercial and strategic rather than the formal claims processes –which is equally interesting work for the likes of you and I. Youmay have two or three things on the go at the same time, which can be amazingly challenging. So you need your advisers to be people who understand, for example, that it might be important to use connections in a particular way, or use the law in a different country, or use a combination of different insolvency options withmore traditional routes. Quite often you find that you are up against individuals who are not overtlywealthy but, when you start digging, you find that they are, or indeed vice-versa.
At the small end of the spectrum, the insolvencies we are seeing are companies that are perhaps the non-critical, or the less critical, suppliers to the oil &gas sector, because they are the ones being cut out by the big players. ST EWART We’re seeing a lot of that too. DI ANE This point applies in any sector in difficulty. I think it’s easy to forget that when a big company goes into administration, like BHS in the UK retail market, it causes a ripple effect – for example, the subsequent collapse of Pretty Polly tights has been blamed on the demise of BHS. So any sector that’s experiencing distress causes associated distress. That would be typicallywhere, in oil &gas, the kind of mid- market and the smaller suppliers are impacted. However, distress can lead to opportunity too. The best parts of businesses go to new owners and those suppliers that can survive the impact will probably be leaner and have potential to take a greater market share in future. ST EWART Our M&A teamare certainly being kept busy with the number of sales and rationalisations happening, and I think theywill only be getting busier. Diane, many thanks for your time and sharing your insights with us.
CREDI TORS COULD BE T IED UP FOR YE ARS IF THE Y PURSUE A SSET S AND MONIES IN CORRUPT REGIMES , BUT EQUALLY THE Y SEEM MORE DET ERMINED THAN E VER TO SHOW LEGI T IMATE C AUSE AND APPLY POL I T I C AL PRESSURE .
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