The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian accountants are bracing for “a spike” in corporate liquidations, receiverships and restructuring over the next two-three months as the post-COVID-19 fate of many businesses is determined.

Craig A “Tony” Gomez, the Baker Tilly Gomez accountant and managing partner, told Tribune Business that his profession’s focus as the economy emerges from the pandemic-related lockdown will shift to advising corporate entities as opposed to merely auditing their financial statements.

Arguing that accountants can “be leaders” in the economic recovery and rebuilding process, Mr Gomez said he and his colleagues will likely have to prepare numerous clients for the challenge of seeking extra capital - be it new investors, an ownership change or debt financing - to carry them through a period when tourism industry activity is likely to be minimal.

“We will be getting them ready to approach financial institutions, helping them and holding their hands to let financial institutions know that while business was interrupted, no way have our clients ceased business and they need to get back into the business community,” he added.

Mr Gomez, though, readily acknowledged that corporate Bahamas will likely see a surge of business closures, takeovers and receiverships due to the inability of many companies to recover from the financial devastation caused by COVID-19.

Most firms will have seen top-line revenues plummet, if not dry-up completely, due to an economic lockdown that has lasted for two-and-a-half to three months - and beyond for some - due to the measures enacted to combat COVID-19’s spread.

Despite earning zero income over this period, rent, utility and over fixed overhead costs have continued to be incurred, eating up whatever financial reserves many businesses have been able to set aside. As a result, many may elect not to re-open, as occurred with Luciano’s, which elected to cease activities with the loss of 72 jobs after COVID-19 put “the final nail in the coffin” following two years of sustained, heavy losses.

Mr Gomez told this newspaper that pressures from creditors, such as bank lenders, and the reluctance of shareholders and directors to inject the new capital necessary for a company’s survival, are also likely to be key factors driving an increase in insolvency, winding-up and administration work.

“One has to believe with respect to insolvencies, and restructuring businesses, which includes liquidation and receiverships, that there will be a spike in that business for several reasons,” the Baker Tilly chief told Tribune Business.

“One will be the natural failure of companies due to the pandemic. Two, because of the shutdown, the Boards of many corporate entities will be conducting evaluations and they may decide it will not be best to continue and that maybe they should exit their business.”

Acknowledging that numerous liquidations, or company winding-ups, may be voluntary in nature as opposed to court-supervised or forced, Mr Gomez said: “We expect to see both types of liquidation. I think it’s not going to be within the next few days because we’re not sure how long the pandemic will continue.

“But I expect that within the next two to three months decisions will be made in many Board rooms among directors, shareholders and creditors about continuing a number of business entities, and whether to continue supporting the business or put it into liquidation or otherwise.

“There may be a number of defaults with the bank, and the bank puts a number of entities into receivership. These are things not yet known, as we don’t know where we are in business and business processes. While we’re trying to get back to work, the pandemic is still here and it’s uncertain how long it will last.”

Kendrick Christie, the Crowe (Bahamas) accountant and partner, told Tribune Business that his firm had already been contacted by “a lot of clients crying about cash flow management” and seeking advice on how to restructure and reorganise their companies as they and the economy aimed to revive following the easing of COVID0-19 restrictions.

He pointed to the failures of prominent, decades-old Bahamian companies such as Taylor Industries and Cavalier Construction as an indication that not all was well with the economy pre-COVID-19, with the economy last year expanding by just 1.5 percent.

“I think you are going to see a number of restructurings and reorganisations. There will definitely be an uptick, no doubt about that,” Mr Christie said. “A lot of businesses are asking for help with that, bringing in new money and investors. We do anticipate some closures before the end of the year.

“Before this [COVID-19] happened there were issues, but I think it will be a wait and see if the economy rebounds with the opening on July 1. If tourism picks up, there may be some relief.”

Mr Christie added, though, that The Bahamas’ re-opening coincides with the traditionally slower part of the tourism season when some businesses close for a month or two. He added that some companies may try and hang on to see whether the tourism rebound is sufficiently strong enough to generate the revenues and cash flow required to keep them operational.

Philip Galanis, principal of HLB Galanis & Company, told Tribune Business he was “hoping we don’t” see a surge in insolvencies and corporate restructuring because “it means companies are in severe trouble, and facing enormous difficulties that threaten their ability to be going concerns”.

He added: “I’m hoping we don’t get a lot of that business, but there are a lot of companies that have tremendous cash flow issues and therefore we are likely to see that increase.” Mr Galanis said banks and other creditors were likely to be a major source of receivership work for the accounting profession, while shareholders will want to ensure their investment is “run in an effective way”.

“I’m hoping we don’t get too many of them,” he reiterated. “While it’s good for liquidators and receivers, it’s not good for business, and does not portend well for the economy either as it means companies are struggling to continue as going concerns. For the most part creditors are so far exercising a degree of forbearance, and hoping the economy turns around.”