Published June 22, 2009

Corporate restructuring keeps audit, law firms busy

There's sharp rise in work volume and, in some cases, fees too

By LYNETTE KHOO

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(SINGAPORE) Corporate restructuring experts are busy for good reasons in bad times, as more distressed companies restructure to preserve their business, protect suppliers and keep creditors at bay.

Increasingly plagued by going concern issues, many companies are scurrying for help from these experts, driving up the volume of work and, in some cases, the professional fees as well.

At KPMG, for instance, corporate restructuring work has jumped over 50 per cent, according to Bob Yap, head of forensic at KPMG Singapore.

The volume of work has been picking up since late 2008, auditors and lawyers observed.

As for fees, a senior audit or legal partner can charge an hourly rate of $1,000-$2,000 while a more junior one may clock in a few hundred dollars per hour, some auditors and lawyers told BT. These rates are similar to those for a special audit.

But total restructuring costs may be inflated if consultants charge a separate fee based on a percentage of the funds raised.

For the restructuring work at the former Citiraya (now known as Centillion), Nicky Tan's firm nTan Corporate Advisory was paid $12 million, of which some $2.5 million was paid in cash and $9.5 million through the issue of new shares.

But there are different strokes for different folks. Ferrier Hodgson - a firm that provides turnaround, reconstruction and forensics services in the Asia Pacific - and Rajah & Tann say they do not clock a percentage of the funds raised or the value of debt restructured.

'We principally charge according to agreed hourly rates, which will vary depending on the seniority and expertise of the relevant lawyers and the urgency and complexity of the work,' said Lee Eng Beng, a senior counsel at Rajah & Tann LLP.

'We may sometimes agree to work on a fixed-fee basis if the nature and extent of the work can be defined upfront with sufficient certainty,' he added.

But fees have not gone up significantly, Mr Lee noted. On the contrary, there is increasing fee pressure as troubled firms and their creditors try to reduce costs.

Tim Reid, a partner at Ferrier Hodgson, told BT that there has been a significant increase in the hourly fees charged but rates have remained below $1,000 per hour per consultant. 'We are extremely conscious that the fees must represent the value-add that we achieve,' he said.

There are also instances where advisers may agree not to receive payment for corporate restructuring until the company is revived.

There has been no payment yet by China Printing & Dyeing to its judicial managers from KPMG Advisory Services except for out-of-pocket expenses, according to a source close to the matter. The company has been under judicial management since November 2008 after its parent firm was bankrupted and its CEO and deputy CEO went missing.

It was also said that nTan did not receive any cash payment for the judicial management of former Seatown Corporation between 2005 and 2007, and subsequently took shares of the restructured firm Asia-Pacific Strategic Investment Ltd.

But where there are issues with the integrity of management and information received, restructuring - which requires creditors to exit under less favourable terms than they were contractually entitled to receive - becomes very challenging, Mr Reid said. 'There has to be good reason for them to take the hair-cut.'

Companies that cannot restructure because their problems are too serious, are forced to liquidate. But there hasn't been a big jump in compulsory liquidations this year.

In the first five months, 53 companies were wound up and 67 petitions for compulsory liquidation were filed, according to data from Singapore's Insolvency & Public Trustee's Office.

These numbers are less than half the levels seen in 2008, where some 132 companies were wound up and 157 petitions were filed.