O'Keefe in the News

Role of a Financial Turnaround Advisor

Role of a Financial Turnaround Advisor

August 1, 2011

A financial turnaround advisor plays an important role in any legal planning for naming an Emergency Financial Manager (EFM), avoiding an EFM, or in the worst case preparing for a potential Chapter 9 filing. A third party turnaround advisor specializes in troubled situations and brings credibility to an acrimonious situation. A turnaround advisor can provide the analytical skill that may be lacking at the municipal level and brings years of experience handling tough workout situations.

The main goal is to avoid getting into an EFM situation. Financial turnaround advisors can work with either the municipal government or school district to develop and implement a plan fixing the issues without the turmoil of the EFM process. If the situation does go to an EFM, financial turnaround advisors will likely play two main roles: providing various financial analyses of the situation and testifying in court to support actions taken by the EFM or in a Chapter 9 filing.

Turnaround advisors are used to dealing with chaotic situations where data and personnel are not always reliable. A good advisor is invaluable in analyzing data and determining the main drivers of a situation. Financial data can often be intimidating and a good advisor can boil down the data to an easy to understand level. This skill will be very important as the likelihood of legal challenges to cost cutting or revenue raising actions could require the advisor to make presentations to various constituents or provide testimony in support of the restructuring plan.

If court challenges to the EFM bog down the restructuring process, a Chapter 9 filing may become a reality. The financial turnaround advisor will be crucial in defending challenges to the filing such as proving the entity is insolvent. In addition, the volume of financial data required for a bankruptcy filing can overwhelm the municipality’s accounting staff and an advisor is often asked to handle all data preparation and analysis related to the case. Advisors may also play a key role in the negotiating process, which may take place under the threat of the appointment of an EFM and/or Chapter 9 municipal filing. A good advisor is a key member of the legal team for planning strategy, providing analysis, and constructing a plan of reorganization for exiting Chapter 9.

In summary, financial turnaround advisors can prove beneficial in all three restructuring scenarios:

  • The best course is working with the city or school district to develop a plan and avoid EFM action.
  • If an EFM is named, assist the EFM in developing a restructuring plan plus testify in court when necessary to support the plan
  • In a worst case scenario, provide the financial horsepower necessary to guide a municipality or school district through a Chapter 9 proceeding.

About the Author
Brad Coulter is a Director and Certified Turnaround Professional at O’Keefe & Associates, a restructuring firm based in Bloomfield Hills, MI. Mr. Coulter has over ten years of consulting experience in dealing with financially troubled entities.