Practice area focus: restructuring and insolvency

One of the few areas that prosper during an economic downturn, restructuring and insolvency by its very nature revolves around companies and individuals in distress. During years of recession, insolvencies and restructuring can make the headlines on an almost daily basis, and on a truly global scale. 

What’s it all about?

When companies find it difficult to pay their debts, debtors and creditors need to know precisely where they stand. Could a liquidation of the company concerned be required? What can creditors do under their finance documents to try to take control of security? Is a restructuring of debt possible? These are the sorts of questions that will be asked when events take a turn for the worse and, as an insolvency lawyer, you will be the one who has to come up with the answers.

insolvency, bankruptcy, restructuring“We’re basically involved where there is financial or operational distress in a business. Acting for corporates and lenders, the practice areas covers everything from personal insolvency to large corporate distress and restructuring,” says Eversheds partner Carl Allen.

Restructuring lawyers attempt to rescue these troubled companies by reorganising the repayments of debt, restructuring structured and leveraged finance vehicles, and rescheduling equity, all in order to prevent the client becoming insolvent. Meanwhile, insolvency lawyers negotiate administrations, receivership, and liquidation.

Restructuring and insolvency law has different aspects to it, says Allen. “It’s broken down into three areas – transactional, contentious, and advisory. Transactional work might involve the sale of businesses or assets in order to rescue a company. With the advisory piece, you’re required to mitigate insolvency risks. You might be helping the board of a distressed company and directors at risk of personal liability. On the contentious side of things, you’re dealing with wrongful trading, priorities in securitisation positions and asset tracing.”

Addleshaw Goddard partner Ged Barnes adds that restructuring and insolvency “covers a wide range of areas from the more traditional insolvency routes” – administrations, receiverships and liquidations – “to pre-pack business sales, debt restructuring and turnaround. The clients likewise are varied, including clearing banks, alternative lenders such as asset-based lenders or challenger banks as well as corporates and other stakeholders.”

What is life in the practice area like?

Restructuring and insolvency is varied work. There is diversity in the type of clients, as lawyers represent both creditors and debtors, established banks and individuals. Clients might also be domestic or a company that covers multiple jurisdictions. “In cross-border situations, you might be working with other offices from different countries,”

Barnes says: “Life in the practice is challenging, but very rewarding. The transactional elements are fast paced with little lead time and tight timescales, while contentious and insolvency litigation tends to be highly technical and strategic.” Allen also emphasises how rewarding the job can be if you manage to turn around a business, owing to the “wider implications of turning it around – as well as satisfying the needs of your clients, you’re saving employees from losing their jobs”.

Being an insolvency lawyer means that you’ll typically be exposed to other practice areas within your firm. If the restructuring of a company requires that new security is put in place you will work alongside finance lawyers. Meanwhile, a company facing administration or liquidation will most likely have property assets as well as intellectual property assets, so you can expect to work with those departments too. You should be prepared to deal with all of a company’s issues and this can result in work ranging from employment law and competition to pensions.

As with other areas of corporate law working hours can be somewhat unpredictable. There might be periods when you are not flat out (while your corporate and finance colleagues are busy) but whenever the economy takes a tumble insolvency lawyers must deal with the increased number of restructurings and liquidations that result. So in the eventful period either side of September 15 2008, when investment giant Lehman Brothers filed for bankruptcy, it’s a fair bet that many insolvency lawyers did not get a great deal of sleep, But when the workload does pick up the nature of the work itself is sufficiently interesting and challenging to offset the increased hours.

What skills are needed as an restructuring and insolvency lawyer?

Lawyers in restructuring and insolvency need to be able to grapple with the complex technical aspects of the job. Adaptability is also a key asset in this area, which requires lawyers to “be able to turn their hand to a wide range of issues”.

A degree of pressure is inevitable when dealing with people and companies under a lot of stress, the stakes being so high. Accordingly, restructuring and insolvency lawyers must be comfortable with these high stakes and be able to appreciate the potential sensitivity and volatility of their clients. Given the multi-disciplinary nature of the work, they must also “possess the ability to work seamlessly with colleagues and engage with other areas of the firm,” says Barnes, who also emphasises the need for “tenacity, agility, industriousness, fast thinking and an eye for detail.”

What’s happening in the field?

As with almost every other legal practice area, and especially those with a cross-border element, the ramifications of Brexit will undeniably be felt by UK restructuring and insolvency lawyers. Although the exact effect is still unknown, Brexit may complicate cross-border proceedings if the relevant EC Regulation no longer applies to the UK.

The Regulation enforces uniform rules on the jurisdiction to open insolvency proceedings and engenders the recognition of such proceedings across all EU Member States. If the UK was to relinquish the rights given by this Regulation, its attractiveness and reputation for cross-border restructurings and insolvencies on an international level could be adversely affected.

Carl Allen comments: “Brexit will be interesting. On the cross-border side, one of the things that has made the UK so popular as a location for international restructuring and insolvency has been the EU regulations which enable easy cross-border dealings. How will Brexit affect that? Even with cross-border regulations not applying, lawyers will still be able to use other tools to allow proceedings to take place. It will be fascinating to see how lawyers access and use these different tools to achieve these means in the next few years.”

Ged Barnes adds: “The market remains relatively flat post Brexit and we are yet to see the full impact of it both domestically and overseas.” Barnes also highlights a current trend in the field: “In fact, work levels have been pretty static for a number of years now but the type of work is changing and evolving. There is less formal insolvency with lenders and stakeholders more inclined to explore alternatives through recovery or realisation strategies such as debt restructuring, re-financing, et cetera.”

The trainee’s role

Barnes states that “trainees get a wide variety of experiences” in a restructuring and insolvency seat. Transactional work involves helping draft documents, negotiating business sales and title disputes. Contentious insolvency includes drafting proceedings, witness statements, disclosures, and preparing for trial. Real estate insolvency involves preparing auctions or sales packs, and reports on title and lease reviews. Allen says that trainees can expect “lots of face time with clients: there is an expectation to get engaged with clients, probably more so than in other practice areas.”

Hogan Lovells trainee Ben Thomas says: “Trainees can undertake company searches, manage documents, draft correspondence with clients, research legal and factual issues, draft security documents, prepare documents for execution and oversee that the conditions precedent for completion of a deal are all met. The work trainees are expected to complete will vary according to the needs of clients at the time.”

He adds adds: “Trainees are frequently expected to be on top of the administrative side of matters and are expected to know the progress of a matter on request.  There is also an opportunity to develop drafting skills; for example in drafting debentures and deeds of release, and the seat is an excellent lesson in the importance of attention to detail, a skill which is vital to any solicitor’s role.”

by Tom Hosking