By LYNETTE KHOO

Companies in distress should seek help earlier to increase their chance of a successful rehabilitation, insolvency experts say.

Very often, they go through a period of denial. Others simply do not have enough knowledge of the options available to them.

'When directors find their companies in difficulty, they have various options to protect the company, such as schemes of arrangement or judicial management,' said Tim Reid, partner at Ferrier Hodgson, a firm that provides turnaround, reconstruction and forensics services in the Asia Pacific.

'Unfortunately, people don't react soon enough, though I believe it is part of the directors' duties to preserve value for the stakeholders - be it the creditors, shareholders or employees.'

A voluntary restructuring can take the form of an informal arrangement or a scheme that requires approval by a majority of creditors under Section 210 of the Companies Act. Companies can also restructure under judicial management, which accedes management control to judicial managers.

Turnaround experts note that companies do not know enough because they tend to sweep such issues aside in good times, and the issue gets stickier in hard times.

Some argue that high professional fees may be a barrier to companies seeking help earlier. In some cases, professional fees can be as high as $1,000-$2,000 per hour for a senior partner. But there are also restructuring advisors, including the seasoned ones, charging rates in the region of a few hundred dollars.

When companies seek professional help early, they are in a stronger position to restructure and forestall the bigger problems that may surface months down the road.

As an analogy, it is easier to treat an illness at the early stage, said Don Ho, a corporate restructuring specialist and founder of advisory firm Don Ho & Associates.

He is also chairman of the Insolvency Practitioners Association of Singapore (IPAS), a professional body for insolvency practitioners that is currently working towards accreditation of insolvency practitioners.

Mr Ho said IPAS mooted this initiative on accreditation since mid-2008 with the Institute of Certified Public Accountants of Singapore (ICPAS). The association also hopes to formalise the enhanced ethics code - adopted from the International Federation of Accountants (IFAC) - among its IPAS members over the next few weeks. IPAS also aims to eventually be self-regulating.

Some insolvency practitioners believe that companies shouldn't wait till they are in a very bad shape before they seek court protection under judicial management. The regime provides a moratorium on all legal actions against the company and enforcement of security.

This allows the company breathing space to adopt a more considered approach to restructuring, said Andrew Chan, a litigator at Allen & Gledhill and deputy chairman of IPAS.

There is merit in judicial managers coming in early if the company requires the intervention of an independent third-party to take over the helms from a management that has lost credibility, he added.

But introducing judicial managers comes with additional costs, loss of management control and poses a risk to the continuity of business relationships, Mr Chan noted. 'Sometimes, schemes of arrangement with the incumbent management in place may provide a better restructuring option.'

Rajagopalan Seshadri, a partner for transaction advisory services at Ernst & Young Solutions LLP said he is increasingly witnessing out-of-court arrangements where creditors and management work together with an independent accountant to restructure the debts.

'We do see a rise in the number of enquiries relating to restructuring while companies are still in the early stages of distress,' he added.

This article was first published in The Business Times.