As UK general counsel at
GE Capital, Simon Ramage
knows more than most lessors about how to handle a vast asset
portfolio during troubled times. Here he discusses administration,
risk and fraud.
Go deeper with GlobalData
In a recessionary environment,
there is an increased risk of businesses breaching covenants,
requesting waivers or becoming insolvent.
It is at this stage that the ‘devil
in the detail’ reveals itself. The need for having a
well-structured deal, with clear legal plans and actions in place
should a customer default or go into administration, has never been
starker.
This is the approach GE takes to
every deal structure – how to create a solution that meets the
customer needs, but clearly outlines the legal steps and procedures
should a business get into trouble.
It is a fine balance. We have
around 10 legal and compliance experts in our UK platform, many
with experience of previous economic downturns, supported by a
panel of external legal providers, to ensure that deal
documentation clearly outlines how assets will be recovered if
required.
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By GlobalDataThis also includes dispute
resolution – good documentation in contracts will restrict any need
for litigation.
Also, our in-house legal counsel
involved in restructuring deals are also involved in the initial
deals. This increases the likelihood that a solution can be
identified which allows customers to maintain the use of essential
equipment.
It is in no one’s interest to see a
customer become insolvent, so the primary legal goal is to see if
we can work out a successful conclusion.
Unfortunately, not every situation
can be resolved. We have an experienced collections team familiar
with legal requirements, supported by a long-standing legal
partner, which will evaluate the best course of action for asset
recovery. We want to ensure our processes do not alienate
customers, particularly in tough market conditions.
Experience matters in collections,
and strong expertise and knowledge of key assets helps when
structuring a deal and also when recovering assets.
Naturally, repossession strategies
depend on the assets in question – our course of action will differ
for a corporate aircraft versus office equipment, for example, and
we would typically use specialist agents that we have worked with
for years to act on our behalf to recover assets.
A close relationship with customers
and external partners pays off – it makes any ‘work out’ situation
easier and more efficient for all parties.
Insolvency is not the only threat
in a down market. Incidents of fraud tend to increase, too. Good
practice and experience will serve lenders well when markets turn.
We have dedicated personnel in the risk teams whose sole function
is to identify red flags, and we have invested in electronic and
manual processes to identify deals, customers, assets and
structures that are most susceptible to fraud.
Experience counts – you can never
tell exactly how and when fraud will occur. If we identify a
fraudulent request, we will immediately report it to the relevant
authorities for further action.
In our experience, it tends to be
the smaller ticket items – such as laptops and office equipment –
that are most commonly targeted and need to be most keenly
observed.
Funding applications from start-up
companies, ‘shell’ organisations or through PO Box addresses are
other warning signals.
There are enhanced AML
responsibilities and insolvency laws to protect lenders in terms of
legislation, but there is no better protection than having detailed
documentation at the start of a relationship.
The author is UK general
counsel at GE Capital
