The Road Ahead for Turnarounds, Restructurings & Insolvency

[Music] I'm very excited to to be speaking with you and I think it's worth noting there were a couple of other panelists scheduled to speak here today but I was saying I couldn't be more excited that she's the the last woman standing um because very very relevant experience for for the topic at hand we're here to talk about the road ahead for turnarounds restructurings and insolvency with a focus on the Middle East we can we can dabble in a few other jurisdictions but um you you have while you're based in the UK your focus um in your career has really focused on Emerging Markets including the Middle East so before we look at the road ahead I think it's important to take a look at the road so far can you walk us through an overview of what the restructuring landscape in the Middle East has looked like and looks like today I think it is indeed very important to look at the history and this region in particular over the last 10 years have undergone a number of reforms we look at back in 2015 that's when the first instancy regulations came out in atgm 2016 when you see the UAE federal law which is going to be repealed and replaced in uh 2024 in May with a new law that literally just came out uh then we see in 2018 and I'm looking at sort of the the key the key markets in the in the region uh in 2018 we see Bahrain and uh Saudi Arabia adopting legislation specifically to deal with bankruptcy then obviously covid era uh there have been a number of amendments specifically to address the emergency situation to introduce there we go easy okay go on of amendments to um increase flexibility of the regimes to also deal with the emergenc situation done okay so um I think um and and all of those U reforms have um picked from either UK us rues some of them like the AFC for example picked from so and France so they they try to chap the regimes that are really working truly working in the uh in the World At Large and and introduce them uh to create a market here and I think um one one of the things just to remind everyone the target of the reform was sort of multiple right one of the things is was to create a purpose bu tool for businesses to actually survive rather than end up in liquidation which was the case before and that meant that the legislation need to introduce a variety of tools uh some uh Court L to allow those businesses to continue um as a as a going concern uh interestingly and this is very important for this Market as well is one of the targets that um was aimed by the reforms is decriminalization of insolvency there's still U stigma attached to insolvencies uh in this area so um some legislation achieved that better than the other but I think that was one of the key areas for developments and um again the risk of overgeneralizing but in bullet point format some of the other areas that you see in the legislation here is increased flexibility to raise uh inim funding ability to deal with assets that are subject to security because that could be a vital source of funding for a business that's undergoing restructuring and um also uh ability to efficiently deal with holdouts so you're no longer um restructuring an institution where you need to get consent from every single creditor in your pool but rather have certain regimes that are available to you to cram down the um dissenting creditors so this is this is kind of broadly the reforms that we've seen um in in GCC in particular the just five years or so well I think kind of if you look back to 2015 yeah we almost 10 years but um yeah roughly the last five years we probably have seen the biggest number of changes in the space I want to unpack Abu Dhabi a little bit more closely I mean we heard from from Daniel Chapman earlier that Beyond this being the capital of capital there's so much more to offer and and benefit to opening in adgm specifically can you talk to us a little bit about what the regulatory framework looks like in adgm and and specifically compared to other areas in the GCC so I think it it's probably important to take a step back and look at the eue uh more broadly UAE insolvency restructuring regime is very multi-layered so we're looking at the federal law kind of applicable throughout the whole country and then with the exception of the offshore regimes that are available in atgm and DFC um the Federal law is civil law-based system um the adgm and DFC regimes are common law system what's interesting about adgm in particular is that and it's Unique as a system in that um regard is that it applies uh UK English common law directly and uh when we look at the infrastructure around the system and the set of rules you also have judges who have experience and some of them are retired judges from English courts so you bring in not just the the fact that you and piggyback on the whole system of law that's been existent and developing over years and years but you also get the uh experience infrastructure into uh into play as well um in terms of the insolvency regime uh in UA um bullets um because I don't think we're gonna have time to educate everyone on everything available here but looking at the uee um onshore um again and piing back on the um restructuring and reforms that have been in the restructuring space um and what they were targeting we have uh first the PCP so the um uh insol not pre-insolvency restructuring tool and then you have bankruptcy proper which kind of divides into two sections you have uh Rehabilitation proceedings uh that are available or rescue proceedings available under the uh Court supervision and then bankruptcy proper sort of winding up if uh the rescue is not going ahead or is not available in the IFC again you you're looking at a very similar composition of tools available to you so you have CVA uh which is um uh largely based on sgard from France uh and then you have Rehabilitation procedings LED through Court uh which is already a bankruptcy process and then uh winding up if the rehabilitation doesn't go ahead in um adgm interestingly and that's largely based on the UK rules again you have companies regulations with schemes of arrangement which is largely based uh on the UK schemes of arrangement and interestingly um provides the same flexibility and that's a tool that you can use pre- insolvency and then you have Administration with uh a Twist because um in adgm um the administration rules also allow you to enter into deed of company Arrangement which is an Australian tool frankly it's not used in the UK at all um but provides flexibility that you need and again to deal efficiently with the uh descenting creditors as part of the restructuring process so that's largely kind of the uh overall uh picture that you see in the UAE and adgm sort of stands out as I said because of the common law aspect um and also uh because of the infrastructure that we have in place well I mean let's talk about this about bit what what this looks like in practice um because you on the team advising the restructuring of kbbo and um would love to hear about that and also how it compares to nmc health with which I'm sure everyone is familiar with file for bankruptcy in 2020 um which was I believe a a London listed firm but during covid courts weren't available and so they actually filed for bankruptcy in the UAE um in in adgm so walk us through that and kind of compare and contrast the two and what the learnings were from each so I I didn't work on nmcl a full disclosure but obviously everyone heard a lot about that and I think this audience as well had heard about KBB and nmc at norum right now because these are the two cases that have been spoken about uh at length and the reason for that is they're Paving the way for this a they're Paving the way B uh they're very public um and I think these are also the two largest cases that have been happening over the last five years um in the space so um and and kind of I will try and draw parallels with the uh targets that the reforms were uh aiming at uh just to see whether or not in those specific practical examples those targets were achieved um so kbbo started off in 2020 and initially it was uh contemplated to be a consensual restructuring under the supervision of f FRC which is prescribed by the uh federal law unfortunately um over a lengthy period of time we did not manage to achieve a consensual restructuring and I think the key complications in that case were the share volume of creditor actions that were taken so the accounts were blocked um the company just was not able to continue uh operating because every single time they needed to make payments to their doctors they needed to seek consent from the bank um and then uh the number of creditors involved and then the need for liquidity and and again in the F FRC supervised process there's just not um sufficient flexibility in the rules to allow priority financing to to be raised um without seeking consent of every single secure creditor and the situation with kbo was such that pretty much all the assets was subject to some incumbrances already so you need to have some tool to allow that security to be trumped um and interestingly on kbbo initially we were considering migrating to adgm but at that point there was just not enough flexibility in the rules to um to enable that migration to happen nmc um sort of very similar parallel timeline but developed very differently so you're right that um they uh the company was LSC listed um they filed for UK Administration after that the companies that are based here migrated into the aggm there was a separate dispensation allowing the registr to effectively um uh get the insolvent company at that point into atgm specifically to allow them to file for administration here and timing wise um it developed so 2020 uh they filed uh I um believe 2021 uh sorry March 2022 it was resolved so very quick timeline and if you look at kbbo again to compare and contrast um eventually when the consensual discussions didn't end up anywhere they did file in 2021 and the case was resolved in 2023 September so it went through the court proceedings it's interesting because I don't think that for GCC a that timeline is actually um uh particularly long I mean it's it's very short time space and it's development that uh clearly um is an indicative of um the reforms being successful um uh what other uh feature that I just wanted to highlight so on the kbbo as I mentioned the inin funding or priority funding was critical and interestingly while the law itself was somewhat obscure on the ability to raise that priority funding trumping the existing creditors rights um the uh trustee went through the court proceedings and use the court discretion to approve that priority funding um using the kind of one line that the uh existing secure creditors interests are protected um so there is some flexibility but it's just not yet as transparent we'll see what the new law says I'm hoping that that issue has been resolved more efficiently but um clearly there is a need for more transparency in the rules so that people are uh more comfortable going ahead with the uh uh with restructuring on the basis of that um comparing again with nmc uh if you look at the adgm rules as they stand right now 2022 there is a specific provision dealing with priority funding that effectively allows the administrator to go to court and um raise the secured funding if un security funding is not available at that point in priority or On a par passive basis with the existing security creditors if there's adequate protection for the secure creditors an adequate protection could be deemed to uh be there if two conditions I metant right first condition is that um this helps achieve the purpose of administration which is allowing the business to continue as a going concern and the second one that the existing secure credit is better off if this priority funding is raised which very often is the case because if you allow the business to continue as a going concern it's more likely that the recovery level for the secure credit will be higher I mean it's a fascinating case study and in particular because it it really sets a precedent for for what could be to come and and how stable the market really will be the infrastructure will be to to support these going forward so we don't want to wish more bankruptcies on any companies but um but it'll be interesting to see how it sort of how it rolls out yeah and I think a couple of panels ago there was a discussion as to whether or not there will be distressed opportunities on the market um yes this GCC in particular is somewhat insulated higher oil prices um the influx of uh Talent um displacement of some talent because of the events of last year this year sheet exactly real estate market is booming because of the demand levels nonetheless there will be restruct cases what what sectors do you see most vulnerable well construction is probably the one and again I'm not revealing any secrets here because it's been discussed before um and uh in terms of road ahead practice makes perfect right the more cases you have um going through the system testing the rules testing the infrastructure the more robust it becomes and the more trust investors actually have that the restructuring regime works and it goes back to the point having an efficient restructuring regime is not really uh for when the times are really bad it's to create the right investor environment so that investors are comfortably coming in into the market and I think the whole purpose of creating this restructuring Hub and I know I'm kind of speaking for Arvin here more than um anyone but creating this restructuring Hub is also to create a healthy environment so the investors know that if events go belly up at some point they have a predictable trans arent way of resolving the issues yeah absolutely no it's most important it's been what's most eye opening for me in having these discussions um asking Pina what her Outlook is for bankruptcies in the Middle East and she's like well I don't really have an outlook for bankruptcies I I hope I don't see more and I don't expect to see more but it's more about as adgm and the the region overall is so focused on attracting foreign investment um and and the growth of the region is making sure that we have the right infrastructure in place to be able to support that that's right um Switching gears a little bit now away from the Middle East but um we have cop 28 around the corner uh Thursday I think is sustainability day at Abu Dhabi Finance week you recently authored a paper on the role of ESG and and and the role that it's playing across restructurings in kind of various ways mostly focus on the UK and Europe but I'd love to hear a little bit about that um and and also what role you think it could play in the Middle East in I don't know six months one year 10 years I mean ESG is a very hot topic everywhere right I'm not sure how hot it is here um despite the weather but it is becoming super hot and interestingly we see more and more ESG subjects causing businesses to restructure um and that can come from different angles right the business is in a black industry so it has to wind down for variety of reasons um say you have a conglomerate that's um has uh various businesses within the pool and it needs to raise funding um one of the possible ways of is to divest certain uh certain assets that are not critical for the business as a going concern now you have issues because if that business uh is uh in the again in the black space then you will not be able to attract the investors we see a lot of increasing number of litigation cases right that effectively cause the business to then restructure um the one of the examples is the Hawaiian electricity company right because of the fire is in Hawaii now the the company is undergoing um uh distress um at at large um again all caused by natural disaster um so I think these Trends will continue uh and these are more business business issues uh that are um sort of inspired by ESG uh uh Trends but I think they are here to stay and I think eventually they will come into this Market as well um turning it over to the audience does anybody have any outstanding questions for pulina before we wrap up with one more okay I want to end on a high note all this talk about distress and bankruptcy let's be optimistic what is the one thing that you're most excited about looking ahead in in 2024 2024 every single year in January you sort of plan ahead and think like this year is going to be the year of X and Y opportunities never it never quite works out that way I'm actually hoping that 2024 is not going to see similar events that we've seen this this year and last year in terms of wars and invasions because those are massive displacements and um apart from creating opportunities um for restructuring Specialists and the like I think they can create a lot of displacement in the market that frankly um I would not love to see so I'd rather I'm excited for the new year because it's a new chapter um and I would really like there not to be these blacks one massive events happening well said and I think we can all agree with that well thank you so much for your time Pina really interesting [Applause] discussion