- Review your asset portfolio and assess the liquidity of assets in the short to medium term and identify which assets could be realized to improve cash flow; this needs fluid decision making and regular reassessment;
- Consider increasing the frequency of financial / management reporting;
- Review governing documents to confirm what actions are permitted; for example suspending redemptions to avoid a fire sale of assets to meet liquidity needs. Consider taking professional advice before any significant decisions are made;
- Consider whether there are any other sources of funding available (debt/equity etc.) and the proposed terms and impact on the longer term business;
- Review where monies and assets are held in custody and consider a risk assessment of these providers. Consider the concentration risk if held all with one institution; and
- Draw on experienced professionals used to handling business issues in an economic downturn.
Business Continuity Plan
Many clients will have a business continuity plan but these should be urgently reviewed in light of current circumstances. Matters to consider:- Communication is key. A good communication plan can give stakeholders confidence that you are anticipating issues and have a plan to address them. Your plan should identify key stakeholders for example investors, employees, service providers, prime brokers and leverage providers, underlying asset managers/ boards and LPACs. The plan should highlight the type and frequency of communication to each group;
- Consider employee morale and health, changes to hours and working conditions, remote working etc. and any employee retention concerns;
- Consider the impacts on off balance sheet / contingent liabilities such as guarantees;
- Review contracts for any insolvency/default clauses together with any financial covenants trigger points and model these with new forecasts;
- Consider requirements to notify insurers of any litigation exposure and whether there could be any regulatory impact for example inability to hold board meetings in specific jurisdictions due to travel restrictions; and
- Obtain timely updates on emerging risks and threats. Increase the frequency of board meetings and update calls during the period.
Zone of Insolvency
Often referred to as the cash flow test, a company is treated as unable to pay its debts if it fails to satisfy a valid statutory demand, execution on a judgement is returned wholly or partially unsatisfied, or if it is proved to the satisfaction of the Court that the company is unable to pay the debt. For example an unpaid redemption creditor could be a basis to wind up a fund. The Court can also wind up an entity on just and equitable grounds. Some thoughts for fiduciaries when solvency is a concern:- Review the value of investments and assess the impact on the balance sheet / net asset value (and conduct sensitivity analysis) in light of potentially deteriorating underlying assets;
- Consider the solvency position of the company / fund and reassess this frequently;
- If you determine that the company / fund is insolvent the economic interest will shift to creditors rather than investors;
- Carefully review any transactions during this period and consider taking professional advice to avoid entering into transactions which could constitute a preference or a transaction at an undervalue (for example selling off assets at a reduced value);
- Consider restructuring options such as the engagement of advisors or enhancement of the board with an experienced restructuring professional (e.g. CRO); and
- Consider appointing advisors or liquidators to carry out a controlled wind down and whether any court protection is required to facilitate an orderly wind down.
- Independent and generally conflict free;
- Innovative approach;
- Global reach;
- Broad range of expertise; and
- Flexible Solutions.
- Financial Restructuring and Working Capital Management advice
- Acting as Restructuring Directors (CROs)
- Acting as Wind Down Agent and Voluntary Liquidators
- Set up and administration of Liquidating Trusts
- Acting as Court Appointed Liquidators and Receivers
- Schemes of Arrangement
- Forensics Accounting Support
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Independent Directorship Services
30 September 2024
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Cayman Voluntary Liquidations: 2024 Key End-Year Dates and Deadlines
25 September 2024
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Legacy of Stability: Why Provisional Liquidation was preferred over Restructuring Officer as part of a successful restructuring
10 June 2024
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Preserving Value During Fund Run Off Periods: The Long-Term Benefit of a Liquidating Trust
20 March 2024
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HLB expands its presence in the Caribbean
10 January 2024
R&H Restructuring
As an affiliate of Rawlinson & Hunter in the Cayman Islands, we benefit from our relationship with the local and international grouping. In addition to the Rawlinson & Hunter affiliation, our ongoing strategic international partnerships provides us with immediate access to resources for effectively servicing clients anywhere in the world.
R&H Restructuring is an independent member of HLB the global advisory and accounting network. HLB is an independent and dynamic international, advisory and accounting network. Based upon quality and like minded membership, they have a history of innovation, collaboration and driving business growth for their members and their clients.