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The Turnaround Culture
We are living in changing times. Whilst there will always be a place for liquidators and other such formal opportunities, more and more the stakeholders in a distressed company are looking for a better return. They want a win-win situation.

This is especially so with the financiers who no longer put up with low or no returns from the more traditional insolvency situations. Given the competition in the financial field, financiers are more than ever willing to work with companies to help engineer a restructuring. However this will only happen if the company is open and honest with its financiers and addresses its issues early.

Such a counter cultural behaviour is difficult to effect in today's business environment. Australian businesses have a propensity to a culture of denial whereby the difficult issues are not faced in a timely manner. They hold onto the hope that the problems will go away. As we all know many problems just don't go away. This results in remedial action being reactive and often too late.

What needs to be done?

Given the current climate and the increasing willingness of stakeholders to partake in restructuring it becomes encumbent on business advisors to help facilitate change in their marginally trading clients.

It is an invidious position an advisor can find himself in having to move his client from his 'comfort' zone (albeit possibly stressful) to the uncertain. Nonetheless it is an action that in the long run will be beneficial for both the advisor and client.

I visited the United States in October where I attended the Annual Conference of the Turnaround Management Association. What I was able to experience there was amazing.

Financiers of all kinds, from asset lenders to equity investors, all worked at trying to keep companies in business. The culture there is amazingly positive with the concept of enterprise value being predominant. This leads to very little if any liquidated asset sales. In almost all but the very worst cases some semblance of the business is taken forward with better returns for all involved including the banks, employees, and trade creditors. Moreover, the business owners also usually end up with the ability to make a go of their venture and their future.

This sort of outcome is possible because there is early intervention suggested and driven by the financiers and the company's advisors. It is also supported by a buoyant secondary finance market all looking to invest in or lend money to distressed businesses.

We need to create a turnaround culture in Australia. One that tries to rescue businesses, not destroy them.

Written by Riad Tayeh. (Riad is a member of the Turnaround Management Association and is currently serving as President).

Independent Associate Member of Walker Wayland Australasia Limited, a network of independent accounting firms
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