Chief Restructuring Officer
The Role of a CRO
The Chief Restructuring Officer (CRO) has become commonplace in larger companies that require the experience of restructuring (and the contacts) that he or she brings. However, it can be an unsettling experience for the management team when a bank introduces a CRO -management will see it as their responsibility to restructure their company. So this article is written to help directors in understanding the role and lenders in understanding the position from the customer’s perspective.
The CRO must work for the company. It is always a temporary role and it is a role that requires the CRO to be a leader. As one top professional said recently, “When the advisers are asked to leave the room, the CRO stays.”
We have seen claims on CVs from individuals who have not quite carried out the full role or, have not taken on the full responsibility that goes with the title or, worse still, have reported to the lender group*. An "Officer" of a company expects to be part of the executive team. He or she should be covered by the D&O insurance.
The CRO is introduced to get the company through its restructuring at pace whilst minimising cost. It has become the preferred option for many companies who find themselves in unfamiliar territory with their lender(s) as the CRO works for, and therefore has a duty of care to, the company. Nevertheless, it is often the lenders that make the introduction. This is because their experience tells them that were the company not to take on board the ringmaster who will deliver the restructuring – it will probably founder.
A CRO must work hand in hand with the CEO, CFO and other Directors**. He must have the credibility to carry the day in discussions around the restructuring and the directors must take their lead from him. There are reasons for this in cash strapped companies that are addressed below.
Often working initially on a full-time basis, but reducing with time, the expectations should to be clearly set out and agreed in writing, but normally a CRO’s key objectives will be to:
- initially create or restore lender and other stakeholder confidence through his contacts, presence, role and track record
- gain support and influence within the company from day one
- take responsibility for the restructuring plan, planning for the debt and capital structure and for operational change, performance improvement or maybe even preparing the company for sale in the short-to-medium term
- communicate the plan and obtain support from all stakeholders
- initiate, coordinate and oversee the implementation of agreed restructuring actions, often establishing a Restructuring Group involving key management, generally meeting weekly
- coordinate legal and other advisers involved in the restructuring process, at optimal cost
- take the lead responsibility in negotiations with lenders, trade credit insurers, shareholders and other stakeholders
- provide collegiate comfort and support to directors in relation to wrongful trading risks and on their obligations to creditors
- take responsibility for cash and working capital coordination
Directors considering an appointment should insist on the CRO becoming part of the executive team, to add expertise not usually available in-house, to take responsibility for stabilising the financial position, to plan the turnaround and to initiate the turnaround – at pace.
This eases the burden on management, allowing them the time to concentrate on running the business. CROs must be expert in negotiations, planning and project implementation. It is essential to be expert in crisis management as well. Directors who would otherwise be nervous about their legal obligations should take great comfort that the CRO is there to share the burden. An effective CRO possesses extensive powers of persuasion and must have the credibility and independence to make sound decisions, helping the company gain approval for its turnaround strategy and then ensuring this is implemented.
* It is perfectly normal for the CRO to be involved in open dialogue with the lenders and they are expected to have a very close relationship. But companies will find it difficult to fully confide in a CRO that is engaged by the lenders. This might sound obvious but we have seen cases that have never got off the ground because of this confusion of identity and loyalties.
** One very senior lender recently commented: "The role brings additional specialist skills to work alongside the CEO and the process works well where the lenders have confidence in the CEO. However, lenders sometimes put in CROs alongside CEOs as a precursor to the CEO being removed and this creates resistance from CEOs to the concept. It is therefore incumbent on lenders to be honest with both the CEO and CRO at the outset about their level of confidence in the CEO."
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