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New player sees rich pickings in asset recovery market

Published:Sunday | April 29, 2012 | 12:00 AM

But says many insolvencies avoidable

Avia Collinder, Business Writer

A new asset recovery company has set up shop in Kingston and is already touting the market as flush with opportunities.

But Dr Alex Miller, whose company also operates in the United States and the United Kingdom, says as much as 80 per cent of companies which became insolvent during the recession could have avoided shuttering their businesses.

Gate Financial Group Limited, which was founded 14 years ago, has been operating in Jamaica for a year.

Miller, its founder and CEO, said research into local companies whose revenues have tanked, leading to unserviced debt, shows that the receiverships that resulted over the last three years "could have been avoided" if the companies had early crisis-management intervention.

"Upon examining data obtained from various sources including the Office of the Registrar of Companies, we quickly realise that more than 83 per cent of insolvent firms over the period were directly affected by the 2008 to 2010 recession in which they cut jobs and slow down production and manufacturing, which led to a decline in real income and a slump in bill payment," said Miller.

"This set the stage for their insolvency."

Titanic Syndrome

A great number of companies did nothing at all to rescue the business, he said, despite signs of trouble.

"More than 95 per cent of the managers of all insolvent companies were suffering from the Titanic syndrome, which is to say they ignored the early warning signs of the trouble that was on their horizon until it was too late," Miller said.

"Of this number, 63 per cent panicked upon realising their situation and refused to get specialised professional help, for one reason or the other, opting to handle the matter with their internal skill set."

The other 37 per cent did seek help from other professionals, mainly their own accountants, who gave them sufficient advice to manage the winding-up process.

"What all had in common, however, was the belief that cutting and borrowing while continuing business as usual was the answer to their problems," said the Gate Financial head.

international expansion

Gate Financial Group says it hopes to use Jamaica as a springboard for expansion into the wider Latin American and Caribbean business recovery market. Jamaica will be its regional headquarters, Miller said.

Its local set-up - which includes two offices in Kingston - represented the start of a US$10 million (J$870 million) regional expansion investment plan, said Miller, some of which was spent on market testing and branding.

Miller says Gate Financial continues to build out of its corporate infrastructure and that its next move will be a formal introduction of its brand to the Jamaican market.

Founded in 1998, Gate Financial operates through offices in Seattle, London, and Kingston and manages engagements in North America, South America, and Europe in the areas of project management, business recovery, corporate finance, and insolvency.

The Jamaican operation was incorporated March 24, 2011, with one director and sole shareholder of 25,000 shares identified as Shirleen Dennis on Companies Office records.

Gate Financial enters a market dominated by established players such as PricewaterhouseCoopers and Business Recovery Services Limited, but Miller said his company has already landed more than 20 assignments valued over US$3 million (J$261m).

"This surpasses our expectations by more than 47 per cent," he told Sunday Business.

"We have received better-than-expected returns. As it relates to our overall operations, we do not expect to see profits until the second quarter of our third year of operations."

more opportunities

The company sees even more opportunity opening up in the wider region.

"Our Latin American and Caribbean operations will represent a total initial capital investment of over US$10 million when our entire corporate infrastructure and network are completely built out," said Miller.

This, he said, includes three offices across the region and 20 staff members comprising four business strategists, two receivers/managers and liquidator, three turnaround specialists, three financial analysts, one forensic accountant, one document examiner, two investigators, and four relationship managers.

Miller says that the edge Gate Financial has coming into the market is "the necessary skill set to provide a complete cradle to the grave management solution. This is our advantage."

The firm's clientele, he said, includes start-ups with a need to get off the ground; businesses wanting to implement new growth initiatives, companies in financial and operational difficulties, investors who have invested in non- performing or distressed companies, lenders who hold non-performing loans, creditors owing large sums, and insolvency professionals with displaced assets.

Regarding the operations of his firm and the problems faced at start-up, the recovery specialist said his main challenge was recruitment of skills, due to a "shortage of experienced specialised professionals", but also bureaucratic structure that he said is friendly to commerce..

global workspaces

To solve the skills shortage at the firm level, Gate Financial has targeted employed consultants on an overtime, a flexi time basis, as well as retirees, and has also automated all offices - creating a "virtual global workspaces through technology".

Workers from other jurisdictions have also been brought into the island on a part time basis to tackle particular assignments.

Key to business recovery, he said, is a management advisory process dedicated to corporate renewal.

"It involves management reviews, activity based costing, root failure causes analysis, and SWOT analysis to determine why the client is failing. Once the analysis is completed, the specialist creates long-term strategic and restructuring plans. These plans may or may not involve a winding up or bankruptcy filing," said Miller.

"When approved, the turnaround specialist is appointed interim manager and begins to implement the plan, continually reviewing its progress and making changes to the plan as needed."

Miller says his optimism about Jamaican as a regional hub is based on "political stability, market opportunities, strategic location and accessibility to other Latin American and Caribbean markets in which the firm has interest. Membership of the CARICOM Single Market and Economy also presents a strategic advantage to the location and the company," he adds.