Berlin Restructuring Forum: “The selection of administrators and consultants in restructuring: In the area of conflict between quality and costs”

Berlin, December 6, 2017 - At its event at the end of November, the Berlin Restructuring Forum took up a current topic with “The selection of administrators and consultants in restructuring: In the conflicting area of quality and costs”. All four experts agreed that trust in the quality of the administrators and consultants was strongly shaped by experience. The participants differed in their opinion regarding the comparative calculation: For some it is an important instrument for decision-making and transparency, for others it has no meaningful added value, since the benefit analysis is neglected.

The topic “The selection of administrators and consultants in redevelopment: in the field of tension between quality and costs” is in the focus of many participants, mainly due to the increasingly tough distribution battle. Due to the good economic situation, many consultants and administrators are vying for fewer restructuring cases. At the Berlin Restructuring Forum, four experts discussed exactly how this happens via the characteristics of quality and costs.

In his keynote speech, Dr. Christoph Morgen (partner at Brinkmann & Partner) presented nine theses on the subject of costs and quality. His first thesis met with the approval of all discussants: Quality requires specialists, which is why both consultants and administrators need experience in reorganization, restructuring and corporate insolvencies. Another thesis stated that the costs of reorganizations would increase due to friction losses, but this could be reduced through professional preparation and implementation. In addition, Dr. Morgen convinced that creditors are ready to pay for quality. In any case, transparency is more important than the amount of the costs. His eighth thesis was later hotly debated: Comparative calculations would not create a suitable basis for decision-making. In his opinion, a quota forecast is more important, since any additional costs could be offset by other advantages. In the end, he summed up his theses: “In order to be accepted by creditors and courts in the long term and to survive in the market, consultants and administrators must achieve professional restructuring taking into account § 1 InsO in agreement with those involved at reasonable costs.” In individual cases, this will require a restriction on what you can do and what is required.

In the subsequent panel discussion - moderated by Burkhard Jung (hww hermann wienberg wilhelm) - the experts first discussed the quality of those involved and how the entrepreneur selects the consultants or trustees. Dr. Maximilian Pluta (Managing Director of PLUTA Rechtsanwalts GmbH and PLUTA Management GmbH) is convinced that the entrepreneur first gets information from the person he trusts - often his long-term tax advisor - or his network. “The consultant receives the leap of faith necessary for the project. As a result, however, the client expects the consultant to confirm the trust placed in him by means of corresponding results,” explained Dr. Pluta. Quality seals are certainly helpful in the selection. Above all, however, they would be a means of organizing yourself correctly.

Bernd Reich (Head of Special Risk Management, Coface SA, German branch) saw not only recommendations from confidants but also personal research as a common tool for finding suitable advisors. However, the creditor's representative criticized the fact that the number of advisors and the costs were getting larger and larger, even before the decision on the type of procedure - i.e. whether regular or self-administration procedure - had been made. More important for him is the approach of first checking whether the management can continue to act and whether the shareholder is willing and able to finance the company.

For Frank Pollmächer (judge, Dusseldorf District Court) professional participants were essential. The quality of the court, the administrator, the creditors' committee and the advisors play a particularly important role. In his opinion, in order to improve the quality of the insolvency courts, they need to be concentrated. With regard to the quality of the insolvency administrator, he wanted a nationwide uniform location where all insolvency administrators would be listed and key figures that would provide information about the quality of the insolvency administrator would be stored. The courts saw Pollmächer responsible for the preliminary trustee: “We offer the self-manager a shortlist of five to six names. It is important for us that we know and trust the administrator. However, the creditors should also put their trust in him. When in doubt, we as judges must also have the backbone to reject an applicant.” Dr. Pluta explained that there would be no procedure that could only be accompanied by a specific guardian and not by another.

In the discussion, Dr. Morgen emphasized open and honest dealings with customers as an important factor: “You have to show your colors early on. Because even if the entrepreneur is the client, the restructuring is not an end in itself, but serves to satisfy creditors.” He was convinced that law firms that also offer insolvency administration would be more successful and sustainable in self-administration proceedings. Judge Pollmächer confirmed this, since, in his experience, the procedures usually went better because those involved would know the issues.

On the subject of comparative calculation, in which the costs of a standard procedure are shown against the costs of self-administration, the participants had very different opinions: Both Reich and Pollmächer considered the comparison calculation to be useful. “As a court, I am responsible for checking whether the proceedings are at the expense of the creditors. The comparison calculation gives me an approximate guideline for this, even if it may not always be the best. In addition, I request it for the creditors' committee in order to give everyone involved a basic insight into the costs,” explained Pollmächer. Dr. Pluta and Dr. Morgen thought the utility of this bill was limited. Especially because only the costs and less the benefits would be presented. A cost-benefit comparison would not take place.

The Berlin Restructuring Forum welcomed around 80 experts from the restructuring industry at its eleventh event. The forum is a platform for experts in the industry and is organized by Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, GÖRG Partnership von Rechtsanwälten mbB and hww hermann wienberg wilhelm. Twice a year it brings together everyone involved in the restructuring of a company. High-ranking guests present a current topic from different perspectives and share their expert knowledge with the guests in the discussion. The next event will take place in spring 2018. More at: www.berliner-reststrukturierungsforum.de