A closer look at look-sees

Webinar covers context, brass tacks of critical piece of insolvency practice

A closer look at look-sees

Sponsore article

Although the look-see is a critical component of insolvency practice, it’s a piece that doesn’t get a lot of air play. But due to the COVID-19 pandemic, in some areas look-sees are becoming a lot more frequent — and a lot more challenging.

There are a variety of precipitating events that can trigger a lender requiring its borrower to engage a consultant for an independent business review, also referred to as a look-see,, a viability assessment or a restructuring advisory engagement — including the common culprit of debtor default triggered by industry fluctuations. Due to the pandemic, certain industries are experiencing a flurry of look-sees "to determine what options — if any — the borrower has to survive and restructure,” says Lydia Salvi, practice lead, finance, at Practical Law Canada.

“The ultimate goal is deciding whether there’s a viable business to save versus a bust-up liquidation,” she notes, adding all potential precipitating events lead to the same concern: that the lender is under-secured or the value of their collateral could be eroding. “Look-sees help lenders understand what options are available to them and also which of those options would maximize stakeholder value.” 

In a recent webinar, A look at look-sees: Understanding lender initiated reviews of distressed businesses, Salvi joined Stephanie Wanke, senior lawyer editor, insolvency & restructuring, at Practical Law Canada and Matt McCulloch, partner and senior vice president within EY-Parthenon to discuss the context of look-sees, the brass tacks of how they work and also explore the legal considerations that accompany them. 

Recently, a question that’s been asked a lot of McCulloch, who works in the turnaround and restructuring strategy practice with a focus on corporate restructurings and insolvencies, is how are look-sees going during COVID. He says he can sum it up in two words: very challenging.

“Most lenders in my opinion, want to support their clients and the debtors if possible and are not looking to have to resort to formal insolvency unless absolutely necessary,” he says, and they’re especially looking for alternatives to formal enforcement during the pandemic environment.

One of the main legal considerations when it comes to look-sees and subsequent proceedings is conflict of interest, and historically there’s been concern around financial advisors acting in dual capacity. But Wanke says it can make sense to keep the same person throughout, not least of which is cost savings when so many companies are battling the effects of COVID.

“In all insolvency proceedings, time is money,” she says. “There are real life, significant benefits to having financial advisors continue in those roles — there are risks but we’ve got these checks and balances that generally make it worthwhile to not prohibit or prevent financial advisors from wearing multiple hats after a look-see.”

One interesting trend that’s unfolding is that in some cases, COVID has been a life saver, or at the very least a life extender, for companies already struggling before the pandemic hit.

“You may be surprised to know some appear to be surviving based on the receipt of government funding, grants, rent subsidies or other initiatives,” McCulloch says. “It will be interesting to see how that plays out once some of that funding and those initiatives run out.”

 

For a closer look at look-sees, watch the full webinar here or check out what else Practical Law has to offer here.

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