Wednesday 21 February 2018

Growth will not return until we take knife to debt

Receiverships at pubs, hotels and small family businesses have given expert a real insight into state of the economy. By Donal O'Donovan

INSOLVENCY expert Michael McAteer survived the boom, now he's one of the rare breed enjoying a successful run through the bust as the banks, and the courts, send him in when debtors reach the end of their road.

In recent times, roles managing the high-profile corporate rescues of Eircom and Quinn Insurance have pushed the 43-year-old Grant Thornton partner into the limelight, but it's the receiverships of a host of pubs, restaurants, hotels and family businesses than provide the real insight into the state of the economy.

The Dublin northsider trained as an accountant straight out of secondary school.

In the bleak recession years of the 1980s the Christian Brothers boy saw an accountancy qualification as vital if he wanted to be sure of a visa to the US or to Australia, where he ultimately spent much of the 1990s working for Westpac, one of the country's biggest bank.

He returned to Ireland in 1999, setting up a practice with Brendan Foster that merged with the much larger Grant Thornton nine years later.

"We had around 45 staff, we needed a HR function, a financial controller, more space. We had to decide whether we would grow up to 80 or 100 staff to justify the new overheads, or merge, and we eventually did the deal with Grant Thornton, which has been great."

McAteer doesn't miss having his name over the door. The deal meant he was running a big insolvency team, capable of fulfilling major insolvency assignments just as the country swung back into recession.

This time around Australia hasn't beckoned, instead we meet in Grant Thornton's plush riverfront offices in central Dublin, a day after Eircom's successful exit from examinership, the biggest in the history of the State.

McAteer was the court-appointed examiner handling the landmark case. He came in for some rare praise from Mr Justice Peter Kelly, the judge overseeing the deal, for the speed with which Eircom was marshalled though the process, emerging this week in record time.

Mr Justice Kelly's comments were against type, his no-nonsense management of the Commercial Court has become the terror of Ireland's business elite following the economic collapse.

McAteer is now a familiar figure in the courts, his signature bright ties and light suits a contrast to the black gowns of the judiciary. He's suitably modest about the judge's comments.

"To be honest, it can be a lot easier to work through a deal like Eircom quickly. With an SME if I need a set of numbers, well the financial control can prepare them but only once they have made payroll, done the supplier runs. Eircom was completely different."

The administration of Quinn Insurance, alongside partner Paul McCann, did present a real challenge -- his toughest case to date.

The partners were imposed by the courts to take day-to-day control of the insurance business, including managing relations with thousands of bewildered and worried staff.

The huge, freewheeling undertaking became all the more complicated by the dramatic collapse of the parent Quinn Group midway through the process.

To cap it all, the €475 per hour fees that McAteer and McCann were charging to run the business ended up being slashed by 20pc for their final four months in control, on the orders of the High Court's Mr Justice Nicholas Kearns, clearly less impressed than his Commercial Court colleague.

For all the drama, the Quinn case was a one-off. When it comes to solutions to the economic crisis, McAteer returns to Eircom.

"What happened at Eircom is what should happen for the whole economy; you can't solve debt problems with more debt."

The Eircom fix meant ring-fencing cash for investment, even as Eircom shareholders and some secured lenders were left empty-handed.

McAteer's current client mix ranges from the assets of bust property developers to hotels, shops and manufacturing firms. The common thread is debt, which has tied the economy up in knots.

"You have to invest in the economy or you won't have growth, but you won't have investment as long as the debts are there," he says. "You can talk about debt 'resizing' rather than debt forgiveness, but whatever you call it, it's what allows the mindset to change."

McAteer reckons that without taking a knife to debt the economy will remain moribund.

"No one is going to generate growth as long as the focus is on legacy debts. There has to be balance, but there seems to be no point in punishing debtors," he says.

The debt overhang is also behind the still almost total lack of new bank lending, it's the big different between the current crisis and the 1980s, he says.

"However bad it was then, there was always a bank lending, that meant you could always find a buyer for the liquidation assets we had coming out of companies, it kept things moving."

Grant Thornton's current receivership portfolio ranges from hotels and pubs, to factories and apartment blocks. It means a worm's eye view of the economy.

Right now he sees signs of life, especially inside the M50 Dublin motorway, where McAteer, whose portfolio includes a swathe of residential property, says three-bed semis are selling in eight-to-10 weeks, if they are sensibly priced.

"I can get a new tenant into a restaurant unit fairly quickly and they are doing well, but the pick-up hasn't happened in the pub trade, where you might have expected it sooner," he says.

He reckons restaurants have modified their product to meet the new reality, but consumer changes also mean people are happier to drop €30 on a meal than on a night of pints.

Dublin apartments are now mostly occupied, at good yields for buy-to-let owners, and city-centre hotel rates are increasing with demand. But the overall picture remains bleak, held back by the debt overhang and the widespread fear among ordinary people that things may get worse -- a death sentence for spending.

The solution, as McAteer sees it, is to cut debt, even for developers.

McAteer has a jaundiced, but not uncharitable, view of the property players he deals with, mainly because unpaid banks or NAMA have appointed him has receiver.

"There are some really bad eggs, but lots of them didn't do anything wrong, they just weren't the investment geniuses they thought they were."

He's an advocate for radically overhauling the bankruptcy rules, but keen to differentiate between those who won't repay debts and those who can't.

McAteer is a fan of the voluntary insolvency code widely used in the UK, which encourages lenders and debtors to cut deals that strike a balance between the ability to repay and the right to be repaid -- which echoes the Eircom deal.

Current plans to reform the Irish rules don't go far enough in that direction, he believes.

"It needs to be simple and transparent, with punishment if the rules are abused."

The latter comment comes from experience.

"When I ask a debtor for a statement of means -- (the term for a list of everything owned and everything owed) they'll provide it. But if I then tell them it has to be sworn to and there is a risk of five years in jail if it's false, nine out of 10 times there'll be a correction."

McAteer's self-deprecating approach means that as soon as he starts to sound like the man with the answers, he rows back.

"I can tell you that restoring consumer confidence is the key to turning around the economy, but I can't tell you how that can be done," he points out.

Unemployment stabilised this year, the financial sector and many other sectors have full employment, but retail sales have continued to slide.

The point is delivered as a question, and one he'd genuinely rather not have to ask, but in the back of his mind McAteer must knows that all that doom and gloom has to be good. At least for someone.

Indo Business

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