Directors share turnaround insights

Cheryl Edwardes and Rick Crabb know better than most what it takes to steer a troubled business through a ‘near-death’ experience.

Mrs Edwardes spent the past five years at iron ore miner Atlas Iron, as a special adviser, director and chair, while Mr Crabb has spent the past 15 years chairing uranium miner Paladin Energy.

Both companies enjoyed periods as market darlings but also went to the brink of collapse after being buffeted by weak commodity prices and high debt.

The two experienced directors shared their experiences at a recent Turnaround Management Association seminar, with an audience of insolvency experts, lawyers, investors and corporate advisers.

Mrs Edwardes said one of her key lessons was the importance of looking after the company’s chief executive and the rest of the executive team, who had to continue running the business during the tough times.

In Atlas’s case, that team was led by company founder David Flanagan.

Mr Crabb faced a different scenario; Paladin’s founder and chief executive, John Borshoff, left in 2015, with his replacement Alex Molyneux overseeing major cost cutting.

Mrs Edwardes said it could be challenging to find people prepared to serve on the boards of companies going through a major restructure.

“You need to understand the risk tolerance of directors,” she said.

From her experience at Atlas, Mrs Edwardes said it was important to take money when it was available.

She added it was important to stick with gut instinct.

“As directors we knew the company better than anyone outside the business and what was needed to fix the problem,“ Mrs Edwardes said.

Having completed a major debt-for-equity swap and restructuring to stay alive, Atlas has recently been taken over by Hancock Prospecting, in a deal that valued the miner at $427 million.

While many companies going into administration struggled with short-term cash-flow problems, Paladin faced a different scenario.

It had two big debt repayments – the first to bondholders who had agreed to a restructure, and the second to French utility Electricite de France, which it was untimately unable to satisfy.

With Paladin under pressure from several state-owned or quasi-government entities, as well as the holders of its Singapore-listed bonds, Mr Crabb said the firm had prepared for four different options.

“Option D was going into administration, which we didn’t want, but when it came it wasn’t a shock,” he said.

Paladin has since been recapitalised, via a debt-for-equity swap and a $US115 million high-yield secured note raising.

The company and its advisers won restructuring deal of the year at the 2018 TMA awards.

With former Newcrest Mining executive Scott Sullivan recently taking the reins as chief executive, Paladin is once again trading on the ASX and has a current market capitalisation of $320 million.

Also on the panel at the TMA event were Simon Raftery from Remagen Capital Partners, and Byron Beath from Oaktree Capital – two firms that represent the growing number of investors and lenders willing to back financially distressed businesses.