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So what should you do?
1. Update your knowledge of solvency and bankruptcy
laws and regulations
There have been many changes within solvency and bank-
ruptcy laws and regulations in T&T. Are you fully update with
these changes in T&T? Are you also aware of the solvency and
bankruptcy laws and regulations in countries where your cus-
tomers and suppliers are located?
2. Clarify your any "going concern" statements
Does your organisation make any statements in its Annual
Report concerning whether the company is a going concern?
Has this statement been audited by a reputable independent
external auditing firm?
3. Make regular use of financial ratios
Do not abdicate your fiduciary duty as a director and rely
blindly on the other board members to carry out financial
assessments. Every director needs to understand financial state-
ments. Are you able to interpret and analyse basic financial
4. Do not look at only one dimension
Do you examine the financial risks facing your company
from the perspective of solvency risk, liquidity risk, and prof-
5. Compare profitability and insolvency results
The results are context and industry specific and are best
analysed over time and compared to competitors. Board directors
need to understand the ratios of their own organisations and
those of their creditors. Depending on the country, there may
a great variety.
6. Identify your risk appetite and tolerance thresholds
The board as a whole needs to determine the areas of risk
and financial management that are significant and establish
policies. In addition, risk appetite and tolerance thresholds
should be determined by the board. Does your organisation
recognise that different stakeholders will have different per-
spectives on risk?
7. Consider the impact of capital leverage
Are you aware as to how much the risks of potential insolvency
vary according to the proportion of capital raised in debt or
Some business commentators regard solvency versus prof-
itability as a false dilemma. They argue that both are important
and that companies need to monitor both closely.
On the other hand, other experts argue that a company
cannot realise its potential profit if it can't remain solvent along
the way. They argue that the relative importance of solvency
versus profitability depends on the time horizon that is being
used. If you are focusing upon a short term time horizon then
solvency is more important than profitability.
If, however, you are focusing upon a medium and longer-
term time horizon then profitability will become relatively more
This article has been reproduced as sections of the article did
not appear in the September 6 Sunday Business Guardian.
In a future article, we will discuss the solvency regime in the
This column does constitute legal advice. Readers are
advised to seek professional advice for their specific sit-
uations. The CCGI is an independent, non-profit, professional
membership organisation registered with the Accreditation
Council of T&T. CCGI is the award body that provides the
certificate and diploma in corporate governance and the
chartered director qualification throughout the Caribbean.
CCGI welcomes membership applications and participation
in its courses and events throughout the region. Visit our
Web site for more information and to leave comments on
our blog: www.caribbeangovernance.org Non-members can
email comments and suggestions at info@caribbeangover-
Trinidad Cement Ltd: A Case Study
In August 2014, Trinidad Cement Ltd (TCL) was
unable to meet its commitments to its creditors when
they became due in September 2014 and it was to the
board that the company was clearly on the edge of insol-
The cash being generated from operations was insuf-
ficient to service capital and interest. The group's profit
before tax was negative TT$102 million and its total
long-term debt/equity ratio was 753 (in 2012 it had been
In August 2014, a special meeting of the company's
shareholders was convened and seven new directors
were appointed to the board. The new board developed
a major restructuring plan and substantially revised its
strategy. The objective was to make TCL a globally com-
petitive company, with the financial strength to withstand
future shocks and volatility within the global business
The board targeted three categories of stakeholders
to participate in its plan to transform the Company: its
employees, lenders and shareholders.
An agreement was reached with the union settling
outstanding wages and benefits for the period up to
2014. The company is also currently actively pursuing
a settlement of the 2015-2017 period.
Lenders and shareholders
Within the first month of the board taking office in
August, PricewaterhouseCoopers was commissioned to
perform the financial assessment of the company.
The results clearly showed that monies due to creditors
could not be met by TCL, compelling the board to engage
in negotiations with its lenders to restructure the debt.
It was determined that new equity capital was required
as the debt was already at an unmanageable level.
It is hoped that the addition of equity will also put
the company in a stronger position when negotiating
with lenders for reduced interest rates and discounts on
the repayment of outstanding capital.
In October 2014 the board set about negotiating with
the lenders to secure terms and conditions that the
company would be able to service based on its cash
generating capability. These negotiations were concluded
in March 2015 and the company obtained a two per cent
reduction in interest rates, forgiveness of penalty interest,
a principal payment schedule that was based on its cash
flows and discounts on the principal repayment of
between 10 per cent and 20 per cent if the loans are
To achieve an increase in equity, TCL undertook a
rights issue. The Rights Issue closed on March 31, 2015.
Source: TCL Annual Report 2014
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