Fight or flight: Aer Arann, like McInerney, is going into examinership, and both will probably be followed by other, larger, corporate players

It's back, only this time it's bigger and better. I am talking about examinership – McInerney, Aer Arann and possibly a slew of increasingly large corporate players to follow.
This is a topic very close to my heart, having lost pub chain Thomas Reads to the process. I also watched many others fall down in subsequent attempts, slain by the courts and the banks. Examinership challenges the establishment, and the establishment defends itself with great vigour.
The process goes right to the heart of what is needed in Ireland: debt reform. It is a direct attack on your debts. In the examinership process you try to have an honest discussion with your creditors and banks about writing off large amounts of their debt in return for a shot at future survival.
The creditors are always pretty easy to deal with because they recognise the commercial realities of the market, and they recognise that they can make money in future through the survival of the business.
The banks are generally a totally different matter. Their minds freeze like an old PC trying to run Microsoft Vista. The screen goes blank and you get nothing back. Cannot compute, cannot compute… I am not sure where the array of Irish bankers went to college, and I suspect a lot of them came from accountancy. Wherever it was, and whoever trained them, please add a module to the course on debt restructuring and write-downs. It's a big part of banking that nobody seems willing to address.
So, bravely into the breach goes McInerney, the latest property developer trying to restructure its business. Frustration must be very high at McInerney with Nama and the banks having pushed this examinership button. In truth it is probably a game of survival for the management. By pushing for examinership, they have discarded their shareholders in an attempt to save their own jobs, with the fresh American money taking the spoils. I doubt Nama was happy paying those €500,000-plus salaries at McInerney, never mind a share of the future profits. This looks like a last grab by the management at the expense of almost everybody else at the company.
At Thomas Reads, I went looking for a 40% write-down of the debt on a selection of leasehold pubs. We had the cash of €10m ready to pay off the bank, which was owed just under €16m. The bank blocked the process the whole way, believing our offer was too low and that they would be better off running the pubs themselves. We failed.
From the reports in the media, it looks as if McInerney is trying to perform its own magic with €10m of new cash attempting to cram down over €111m of Nama debt. It will be an interesting process, but I doubt this pig can fly. If I am wrong and it does fly, we can expect a cascade of companies and businesses to follow this lead. Politically that seems way too hot to handle at this point.
Bad banks and the rest
As Standard & Poor's was questioning the value of our bad bank and causing consternation at the NTMA, Anglo was busy advancing its plans for the new good bank. Anglo has appointed KPMG for the very important-sounding job of reviewing its loans on a case-by-case basis for inclusion into the good bank. This poses two shocking questions.
First, if Anglo cannot sort the good from the bad in its own loan book, what chance does it have of ever running down its loan book or being a bank again? Surely reviewing loans is a core skill for a bank and no outside help should be needed.
Second, why does the government, and its gofers such as Anglo, always resort to big accountants in a time of crisis?
Last time I checked, KMPG were accountants and auditors with blood on their hands from the Celtic Tiger. They were the auditors to Irish Nationwide. If they couldn't spot the bad loans at Irish Nationwide, how can they spot the good ones at Anglo?
I'd like to see an analysis of the connections between the government and big accountancy and law firms. The government is now pushing so much money at the big accountants that some kind of detailed analysis is merited. The partners at these firms charge astronomical rates at an hourly click.
Most of the modern world outsources professional services such as accounting and legal to India, at rates 20% below the local market. Now there is a money-saving idea for Brian Lenihan in the December budget.
S&P was right
A final few words in support of Standard & Poor's. The agency was right in its analysis of the government debt position. Until we prove the Nama assets have a liquid value by selling them, they should be heavily discounted. S&P is clearly telling the country to get on with it.
We are now poised at the starting line of the great new Nama race. The stadium is full and the world is watching. Buyers are ready on the sidelines, as McInerney has proven. Let's begin, let's move forward, let's sell. We need our national capital released from these toxic property assets and redeployed into the assets of the future through education and research and development. We need to invest in the tools needed for a new future. Our best assets are ourselves.