A creditable performance

A creditable performance

Organisation: British Credit TrustSector: Financial ServicesRole: Interim Finance Director

In the role of Interim Finance Director and Chief Restructuring Officer Alan Gullan helped secure the future of respected City firm British Credit Trust.

British Credit Trust (BCT) is a private-equity-owned UK business that provides non-prime consumers with hire-purchase finance to buy used vehicles. Until mid-2008, it typically had around £300 million of bank funding, which it used to service 50,000 loans with an average value of £6,000 and repayment term of four years.

Its sophisticated credit scoring and IT systems meant the banks rated BCT highly, and continued to lend to it even after the credit crisis broke in the summer of 2008. However, the severity of the credit crisis meant that by September the funding lines were starting to look very uncertain. For the first time in its history, BCT, a well-run, respected, growing and very liquid company, suddenly found its business model under threat.

But the foresight of Chief Executive John Sinclair meant that the crisis didn’t take BCT by surprise. When the finance director retired in June, Sinclair took the opportunity to appoint Alan Gullan, a highly-experienced restructuring specialist, as an interim replacement.

In difficult times, tight cash management becomes essential to survival

“John’s foresight gave me a rare opportunity to get the cash under much tighter management before the crisis really hit us in September,” says Gullan. “You normally get called in once the horse has bolted.”

A chartered accountant and member of the Institute for Turnaround (IFT), Gullan had 15 years’ experience of restructuring companies that are under pressure from lenders.

“Cash is always the key bone of contention,” he says. “When a business is doing well it usually doesn’t pay that much attention to cash. But in difficult times, tight cash management becomes essential to survival.”

But Sinclair didn’t intend Gullan to be a mere stopgap.

“I had a very specific need,” he says. “I’ve been a banker myself, so I knew what could happen and I anticipated extreme difficulties. We had close to £300 million at stake, and I needed someone who could hit the ground running. I’ve been an interim too, so I’m well aware of the value they bring. With a typical full-time finance director it would take us three or four months to sort ourselves out. We didn’t have that luxury. Alan had a very particular set of skills, and he used them to very quickly assess the situation and determine what we needed to do to avoid disaster.”

Gullan joined BCT two days after Sinclair interviewed him. “It’s a feather in Impact Executives’ hat that two people matched BCT’s criteria,” he says. “BCT took me on because I was able to start very quickly.”

The restructuring followed a typical pattern, explains Gullan. “The initial phase is about giving yourself breathing space to gather information and do your proposals to the banks, shareholders and so on. Phase two is about negotiating commercial terms, and phase three concerns all the legal documentation.”

A critical element in success is having the right advisers and the right combination of advisers, he says. “Get it wrong, and you are sunk. You seldom get a second chance in these situations.”

If you lose control, you lose the battle

BCT appointed FTI and CMS Cameron McKenna to work alongside Gullan and the company’s finance lawyers Addleshaw Goddard, but Gullan, whose role had expanded from Interim Finance Director to Chief Restructuring Officer, led the negotiating team and ring-mastered the advisers.

The restructuring team spoke to banks, brokers, staff and other stakeholders, and within a few weeks had stabilised the business and bought time in which to develop a longer-term solution to its problems.

Gullan then began the tough and unpleasant task of negotiating new commercial terms with the bankers, while trying to retain their trust and avoid mutual destruction of value.

Sinclair explains: “BCT had an exemplary reputation with the banks before the crisis broke, which helped the eventual outcome. They knew us very well, we had always provided them with lots of information, were very transparent and so on. They clearly didn’t want us to go out of business, and they respected our management. But they wanted some of their money back because they were all going through their own traumas. Though their intentions were honourable, when money is at stake it becomes a matter of the survival of the fittest.”

Gullan remained calm throughout. “He has an inner strength,” says Sinclair. “Of course he gets stressed, but no one really sees it. He remains cool. And he is very honest and direct in negotiations, but in quite a diplomatic way.”

There is no alternative, believes Gullan: “You have to remain unflappable, because if you lose control, you lose the battle.”

The restructuring was a marathon effort that ensured the survival of our great company

In the end, Gullan’s masterful negotiation benefited both BCT and the banks – BCT survived when several of its competitors went to the wall.

Sinclair concludes: “The restructuring was a marathon effort that ensured the survival of our great company. It’s not a matter of luck that BCT remains open for business, while most of its competitors have been put into run-off. Our infrastructure was sound, our business model flexible and our people outstanding – as they are today. But we needed quality advice and support to ensure they remained so. Alan Gullan’s hard work, strategic orientation and willingness to compromise where necessary have helped us pull through.”

Gullan has now handed the finance director baton to a permanent successor, but BCT has retained him to handle some key projects, including the next round of bank negotiations.

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