Against the backdrop of Brexit, the UK finds itself in a prolonged period of economic uncertainty. It is likely that a rising number of UK companies will experience a period of financial distress.

With this shift comes a change in focus for boards of directors who may be unfamiliar with the specific challenges of distress, and this can drive varying behaviours:

Inertia in decision making or potential “knee jerk” reactions; and

Director nervousness about their personal responsibilities and position.

This paper explores how directors’ duties and responsibilities change in situations of distress and provides practical considerations for boards of directors either entering into or already in the zone of insolvency.

Practical considerations in distressed situations

Many of the stressed or distressed situations THM has been involved in over the years have included M&A processes.

Delivering value in these situations is challenging and places further pressure on a likely already stretched management team. Here are five factors to consider when looking to protect and unlock value.

Even a well managed M&A process comes with a high level of risk. However the level increases further in special situations given the inherent challenges, requirement for speed of execution, changing external market perceptions and likely interested parties.

Before commencing a sales process, it is fundamental to define amongst all stakeholders ‘what good looks like’, agree key milestones and appropriate incentivisation structures. Without these, execution risks could materialise at critical future stages.

A stressed or distressed M&A process is a delicate balance between driving a quick yet competitive process, but without giving any signs that it could be (or become) a fire sale.

Hire an M&A adviser with the relevant sector and situation experience, but also one that has a strong network of relationships with key potential buyers.

The critical stage of any M&A process is the preparation phase. This is key to ensuring all stakeholders are fully committed to the approach and timetable.

Key management workstreams together with the M&A adviser include: business plan and model preparation; vendor due diligence (commercial, financial and legal); data room setup; tax assessment (if relevant); financing options; employee, supplier and other stakeholder communications plan; and warranty & indemnities (including insurance).

As with any special situation, the introduction of an M&A process places the CFO and their finance function under significant pressure. Ensuring sufficient availability of resource with the appropriate skillset from the outset is key to ensuring a stable platform from which to deliver an efficient and well managed process.

Furthermore, the CFO needs to have the requisite skills, experience and bandwidth to ensure the company provides hands on management of the various workstreams, whilst delivering ongoing business as usual requirements.

Have a credible and clearly understood fall back plan ('Plan B') that could be executed in short order to protect further loss of value should the M&A process not result in a deliverable sale at the right price.

This also provides an understanding of the likely downside case should there be only one buyer left in the process that needs to be kept honest.

Across our CRO and Value Delivery service lines, we provide support and deep situational experience to address the challenges facing stressed and distressed businesses.

Below are some of our recent credentials involving M&A.


Stressed or Distressed M&A Processes

THM advises SGS, one of the largest property sub-groups of intu and owner of Lakeside, Watford Atria, Victoria Centre and Braehead shoppingcentres, on its £1.3bn long term financial restructuring, supported by a new money facility of £87m

SGS Finco Limited and its subsidiaries (SGS) comprise one of the largest property sub-groups of intu Properties PLC (intu). SGS owns four of the UK’s leading regional shopping centres and leisure destinations, Lakeside, Atria Watford, Victoria Centre (Nottingham) and Braehead (Glasgow).

Andrea Trozzi of THM Partners was appointed Chief Restructuring Officer and Independent Executive Director to the SGS boards, prior to intu's administration. Neil Robson of THM Partners also joined the SGS boards as a Non-Executive Director. Andrea was supported by Mark Sweeting, Lauren Armstrong and Seppi Grant.

THM, working closely with SGS's asset and property managers, ensured the immediate stabilisation of the four shopping centres following intu's administration and through several COVID-19 lockdowns, successfully migrating the four shopping centres from intu's management to a standalone operational platform in November 2020.

As part of ensuring its stability, SGS secured a short term £30m financing facility along with the necessary waivers and extensions to provide time to migrate the assets and build SGS's operational, governance and reporting capabilities before a long term financial restructuring could be agreed with its stakeholders.

The consensual long term financial restructuring successfully concluded on 16 July 2021 and received overwhelming support from its lenders, with all Noteholders that voted (representing 88% of the three series of notes) and 100% of Term Loan Lenders voting in favour. The key objectives of the financial restructuring are to align stakeholder interests and establish an independent platform with a stable capital structure from which SGS can deliver its three year business plan and exit strategy to maximise value for stakeholders. This includes the extension of Series 1 Note and Term Loan maturities to 2024, "Pay if you can" interest across all debt and the provision of a new £87m super senior money facility.

"This project has demonstrated THM's ability to take directorships and bring leadership, independence, stability and robust governance to a board during unprecedented times. The completion of the long term financial restructuring is a major milestone for SGS, its stakeholders and retailers which have been impacted by the pandemic. It will provide a stable platform to deliver SGS's business plan and exit strategy to maximise value for SGS's stakeholders."

- Andrea Trozzi, THM Partner, Head of Real Estate and Independent Executive Director of SGS

Since June 2020, THM has worked closely with Linklaters, Osborne Clark and PwC as advisers to SGS, Global Mutual as Asset Manager, Savills as Property Manager, Moelis and Clifford Chance as advisers to the Ad-Hoc Committee of Noteholders and Grant Thornton and Freshfields Bruckhaus Deringer as advisers to the Term Lenders.

THM advises SGS, one of the largest property sub-groups of intu, on its £1.3bn long term financial restructuring

With COVID-19 restrictions easing and the impending removal of UK Government support measures, we consider the impact of the pandemic on the role of UK company directors’ and practical steps that can be taken when navigating the road map out of lockdown.

Practical considerations for UK Directors’ when navigating the road map out of lockdown

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