When securities firms fail
Following the U.S. financial meltdown that began in September 2008, stock markets around the world have experienced unprecedented volatility. While the impact of the crisis reverberated in many sectors, the financial services industry was particularly hard hit. Brokerage firms saw fee revenues fall as a result of reduced trading activity. Declining margin loans also put a squeeze on interest revenues.In addition to shattering investor confidence, the credit crunch called investment firm practices into question. With media headlines predicting the failure of securities firms and other market intermediaries, investors have become worried about the safety of their investments.What happens when a securities firm goes bankrupt? How can investors protect their money? If you have ever administered the bankruptcy of a securities firm, or represented anxious investors, you know there are no easy answers to these questions. Unraveling the affairs of a failed securities firm, and distributing its remaining assets, is fraught with legal and practical complexities. [Read full article published in March 2009 in Rebuilding Success magazine]
Welcome to Reshuffle
So what is “Re-shuffle” all about? The name implies chaos, disorder, and upsetting the status quo. While all of that is true, my focus in this blog is on shaking up the status quo, particularly as it pertains to fixing or re-organizing businesses experiencing financial distress.
I write this from my perspective as a Canadian Chartered Accountant who specializes in Insolvency, Restructuring, Distressed Financial Advisory Services, and Fraud Investigation & Forensic Accounting. I am Partner in an independent, Toronto-based advisory firm specializing in these areas of practice.
2008 – 2009 have been unnerving year for so many and while the origins of the financial crisis may lie in the US sub-prime mortgage market, the effects have been devastating and have engulfed the entire global financial community.
While the recession was slow to reach Canada, businesses endured some very difficult times in 2009 albeit that they fared better than their US counterparts. For those in my profession and related fields, I expect some busy and challenging times ahead notwithstanding some promise that the worst of the recession is over.
My initial thoughts were to use this forum to share some of my ideas, experiences and knowledge with corporations, their stakeholders, and lenders seeking insight when business and financial problems arise. I will do all of those things and hope that this will develop into a useful forum for those seeking advice or wishing to share their experiences and hopefully, also contribute with their knowledge and ideas. By making this space as interactive as possible, it can become a useful forum to assist with solutions in trying times.
Having worked in this field for 18 years now, I am acutely aware of the pain that accompanies the demise of a business, particularly when it comes to owner-managed businesses. While never wanting to make light of a very serious subject, I will also inject some levity into this site by sharing with you one of my other passions – sleight of hand magic. For even longer than I have been an insolvency and restructuring professional, I have had a love for the art of magic – a childhood fascination that grew into me performing at many high-end corporate functions or social events in Canada. The magic provides a great stress-reliever, particularly because it is the antithesis of what I do during the day.
While the two areas might seem incongruous, I believe that there are many areas of cross-over that I will explore in upcoming posts: both employ creative problem solving strategies; amazing and expected results are achieved; improvisation and continual re-alignment of strategy are crucial skill sets; and both fields not only require well-honed technical skills but also a keen understanding of people.
Come back often and I hope to make it worthwhile!
Allan
View From The Precipice
In recent months, much has been written about the global financial crisis and its impact on businesses around the world. To date, Canada has fared relatively well, but there are few safe havens from the financial meltdown facing the world’s capital markets. From a Canadian perspective, and perhaps an international one, many business leaders feel like they are balancing precariously on the edge of a precipice. There does not appear to be much good news on the horizon either. Refinancing and restructuring of companies has become more challenging and in the light of this, struggling corporations are more likely to face the prospect of liquidation than in the past, and will realize lower multiples and depressed asset values. For full article see View from a Precipice [Published in Financier Worldwide, January 2009]
Money to Burn – Magic with Meaning
Magic theorists have said that the purest and most meaningful form of magic is that which fulfills a real desire or need of your audience. For example, while it may be impressive for a stage performer to magically produce a random object at his fingertips, it would be far more impressive and meaningful for a magician to instantly produce a delicious turkey sandwich for someone who complains of hunger pangs. The technique and visual effect may be identical but the context makes the second effect far more significant and relevant…With that in mind, I created Money to Burn, which audiences really seem to enjoy. I think in part, this is due to the fact that there is a strong universal and emotional connection to the concept of magically producing money.
[Video footage from Art of Sleight of Hand performance April 2005 - Courtesy of Sankey Magic]
Likewise, in business the timing and context of your service delivery can also make all the difference. We will often consult with companies who could benefit from our expertise right now but for whatever reason, they are reticent to take the next step. When facing financial distress, denial is a natural human behavior and entrepreneurs will often hold on for too long before seeking outside professional counsel. The reasons are complex and many. They include: a belief that things will get better; feelings of embarrassment; reluctance to incur professional fees, etc. You cannot “force” professional services on someone. Having said that, early and decisive action will inevitably enhance options for recovery.
Stress Relief
Particularly during these trying times, we all need a bit of stress relief…laughter and magic can often be the best medicine!
Lenders beware – new employee super-priorities in Canada
New legislation in Canada has given super-priority rights to employees for unpaid wages and pension contributions, which rank ahead of existing secured creditors.
On July 7, 2008 new legislation called Wage Earner Protection Program Act (“WEPPA”) came into force in Canada. By this Act, the Federal government has created the Wage Earner Protection Plan to fund the payment of certain unpaid wages owing to employees at the time a business goes into bankruptcy or receivership.
Concurrent amendments have also been made to Bankruptcy & Insolvency Act (“BIA”) which have the effect of creating new priority charges in respect of unpaid wages and for pension contributions, which, for the first time, now rank ahead of the interests of secured creditors. For more read Lenders beware – new employee super-priorities in Canada [August 2008]
The Shell Game – Follow the Money
Now you see it… now you don’t. Money can be moved instantaneously and buried in places that can’t be easily tracked with fraudsters going to a great deal of trouble to cover their tracks. Modern day fraud has become a highly sophisticated endeavour and is reported to be on the rise.
Despite the sophistication of international fraudsters, forensic accountants and fraud investigators and the computer specialists they work with are close on their heels. Using a combination of good intelligence and the element of surprise, Receivers, with their team of investigators, can often help to track hidden assets and recover funds. For instance, in situations where fraud is identified and there is an urgent need to preserve assets, affected parties can apply to Court for the appointment of a Receiver.
There are also other extraordinary legal remedies that can be used to outplay the fraudsters. These include:
- Norwich Pharmacal Order, which is used to oblige banks to disclose relevant bank records without alerting the account holder
- Mareva Injunction, which compels defendants to make full disclosure of their assets and allows for the freezing of worldwide assets
- Anton Piller Order, which authorizes entry onto a defendant’s premises to search for and secure property and evidence, and
- Letters Rogatory, which allow a court in one country to request the assistance from the appropriate judicial authorities in another country.
For more refer to full article New Directions in Fraud Investigations by Allan Nackan and Jonathan Cooperman [Published in Secured Lender, December 2006]
The Financial Doctor Is In
A day in the life of an insolvency professional is not unlike that of an emergency room doctor dealing with patients at different stages of illness. Like his medical counterparts, the financial doctor is often more successful when there is early diagnosis and treatment of problems. In those cases, the prognosis for survival is greatly enhanced. Unfortunately human instinct is to deny problems and keep fighting for survival. When you are so busy doing triage, you take your eyes off the big picture, often making short-term mistakes and decisions motivated by immediate gain as opposed to more carefully, thought out, strategic plans that will serve your long-term interests. This is where an insolvency professional can help out, providing an objective assessment and applying years of experience to find a creative solution. For full article refer to The Financial Doctors Make House Calls [Published Biz Magazine, October 2005]
About me
Allan Nackan CA CIRP-
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