Restructuring Insights: Q&A with Dutton
Hi Anthony. Thanks for taking a few moments to share your time and insights with us. Let's dive right in.
1. Can you give us some brief insight into the kind of restructuring or turnaround experience you've had?
My restructuring experience has been primarily as a board member or company officer in the manufacturing/industrial and cannabis sectors.
For me, restructuring is either offensive or defensive. An offensive mandate deals proactively with an immediate restructuring situation, whereas defensive restructuring is ensuring that a company’s financial, strategic and management objectives are aligned to minimize the risk of a restructuring ever being required. This is a bit like avoiding the doctor by having a healthy diet, getting lots of sleep and exercise.
2. As someone who has worked a great deal on both sides of the 49th parallel, do you think Canadians have a different view of using court-protected restructuring provisions? If so, why do you think that is? What could we learn from our American counterparts?
This is a great question and the answer is a resounding yes. Americans generally, by nature and culture, tend to be more proactive in a variety of ways and it is no different in their approach to business. They also tend to have a higher tolerance for risk than Canadians and like to swing for the fences.
When it comes to restructuring specifically, Americans will ask “what is in the toolbox and how we can use it to its maximum benefit?” This may not always result in all parties to a restructuring being treated the same, but at the end of the day, if the mandate is to make sure any company survives beyond a restructuring, then generally Americans will have used the process to optimize the results for the benefit of the company’s future.
3. When a company is considering retaining an interim restructuring officer or advisor, when do you think it is critical to consider ensuring that person has real operational experience in company's industry?
There are several parts to the question in my opinion. For an offensive restructuring mandate, which is often quite prescriptive, almost formulaic, it is important to have an industry and/or operation person involved. If they are not leading the charge, then they will certainly need to be on the team.
For a defensive mandate, which is usually more strategic, cerebral and wide reaching, it can be a good idea to involve someone with zero operational or industry experience. Their perspectives are usually fresh, not tempered by any industry bias and will in many instances lead to outside of the box solutions, creative thinking and policy development.
4. Even though the Canadian cannabis industry has experienced considerable distress over the past 24 months, there have been remarkably few attempts at utilizing court-protected restructuring. Why do you think that is? Do you think it will change or will the companies continue to fight for dilutive, strategic or even value-destructive ways of avoiding the restructure?
The cannabis industry is still very young and immature. Many companies have large valuations, yet are still led by inexperienced owner/founder management teams who often have a hard time accepting certain realities. In their mind, a problem can always be solved by an injection of fresh capital, which is why so many of them are often cap in hand.
The reality is that many of the problems are structural and usually lead back to the owner/founder management who do not have a firm grasp of systems, reporting lines, accountability or resource allocation for example. They get overwhelmed, which is when cracks start to appear, but rather than ask for help, owner/founders have a tendency to ignore reality and blindly forge ahead until a restructuring becomes inevitable.
5. Big picture: what do you see in your industries in terms of restructuring and/or turnaround in Canada this year?
2021 will be an incredibly important, even transformational, year for virtually all companies, private or public, as they adjust to the post Covid-19 “new normal.” With respect to restructuring itself, I predict a large number of offensive restructuring mandates as companies come to terms with the reality of the Covid impact and realize that without some fundamental structural changes they will simply not survive.
Another equally, if not more, active area will be in defensive restructuring engagements where firms consider how to better protect themselves from “Black Swan” events like Covid 19 and how to position themselves to take advantage of uncertainty rather than be blindsided, as so many were.
As Winston Churchill once famously said, “One should never let a good crisis go to waste”.
Thank you so much Anthony for sharing your thoughts. We look forward to catching up again with you very soon and hearing more about some of the particular turnarounds and restructurings you're involved with.