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How to close your corporate treasury department down

Julia Fordham, who was heavily involved in closing of the Old Mutual corporate treasury department, describes exactly what to keep in mind as you do it.

1. The Big Picture - Setting Objectives

  • Why is the project taking place – external factors, or internal
  • What is the desired end state, and how clear is this
  • What is the group structure:
    •  Legal entity structure – how complex, which entities are affected
  • What is the current Treasury model:
    • Which parts of Treasury are being closed, and why
    • Is it a centralised, de-centralised, or partly centralised structure
    • What is the relationship between Treasury department(s) and legal entities, are they inter-dependent
  • Understand future state:
    • What if anything will remain of the business and how will it fund itself
    • What will happen to the various legal entities and will they still exist - if so, where in the future structure
    • Consider future fungibility of cash and capital – what flexibility is required
    • How might this affect your thinking about current/future debt strategy

2. Structuring Your Project

  • Consider all relevant time constraints:
    • How fixed are deadlines - are they driven by external factors, e.g. shareholder approvals, court schemes,     public statements to market?  Or internal, e.g. efficiency, cost saving
  • Define work streams carefully:
    • Consider strategic vs operational work streams
    • How will the balance of these change and evolve over time
    •  How different are the main work streams in terms of resourcing, skills and timing – recognise the challenges
    •  How will complexity of group and legal entities affect this
    •  Do work streams overlap, or are they separate?

3. Managing External Stakeholders

  • Fully define the universe of stakeholders, considering:
    • Bondholders
    • Banks
    • Regulators
    • Rating agencies
    • Identify any tensions which may exist between these relationships and agree internal strategy for each
    • Agree internal point people to manage relationships
  • Consider who key advisors should be – banks, consultants, specialist debt advisory teams may be needed
  • Agree on an appropriate strategy for managing bank relationships throughout the project: 
    • This might be different from previous strategy, depending on the business opportunities for banks
    • Maintain open communication
  • Agree Treasury’s role in liaising with other advisors, e.g. legal/accounting
  • Consider what independent assurance might be needed on treasury plans, from third line or external advisors

4. Managing Your Debt Strategy

  • Consider current debt/liability structure versus planned future state
  • Ensure you understand and have carefully recorded the full universe of agreements that are impacted:
    • Outstanding bonds
    • Bank facilities
    •  ISDAs
    •  Leasing agreements
    •  Contingent liabilities – guarantees, letters of credit
    •  Other contracts?
  • Take steps to ensure the scope is complete – especially in a large or complex group
  • This should include internal agreements too – inter-company loans can be just as problematic
  • Be realistic about the quality of your governance and internal records:
    • Can you locate copies of all relevant agreements, are they up to date
    • Historically, has a governance framework existed that supports your process, e.g. restricting subsidiary     borrowings? Previous good governance and record keeping will make the task much easier
  • How simple/complex is internal loan structure
  • Understand full implications of the overall plan on your outstanding debt, throughout the group:
    • Covenant triggers and thresholds, e.g. restrictions on disposals; negative pledge

5. Completing Operational Close-Down

  • Determine in detail what the future treasury model will look like, if there is one 
  • Define clearly what each different strand of the transition will be, is it:
    • Handover of existing processes
    • Outsourcing of existing processes
    • Closure of all processes, with a new treasury function being created
    • Or simply closure
  • Existing treasury model will have a big impact:
    • If certain operations are to survive or transfer, plan additional time for disentangling these
    • Supporting a newly independent treasury function is time-consuming and a project in its own right
    • Decide early on the level and nature of support to be provided to any future functions
  • The operational close-down needs its own detailed project plan:
    • The scope of this needs to be very detailed re precisely which activities will cease, and when
    • Communicate this plan widely around the group
    • Manage internal expectations regarding future treasury support, timing thereof
  • Create a full list of all outstanding contracts, check the scope and re-check it regularly:
    • What are the notice periods, penalties etc for termination 
  • As above for bank accounts – start closures asap
  • Engage suppliers early e.g. TMS provider, and communicate regularly
  • Ensure strong risk management governance and governance continues throughout wind-down:
    • Build this into individual performance goals
  • Stress test the wind down plan regularly:
    • Particularly in terms of time, availability of treasury staff
    • Consider building in extra time to ensure no ‘hard stop’

6. Effective Resource Management

  • Does the project plan give rise to specific resourcing challenges:
    •  Need to manage imbalances between people working under pressure, while others have down time
  • Agree a plan early on, for how to tackle confidentiality:
    • Do you want to keep just a few people ‘over the wall’, or as many as possible
    • Consider how this might affect morale, and general understanding
    •  Education re confidentiality is key – must be regular
  • Conduct regular staff reviews:
    • Check morale, buy-in, understanding
    • Communicate progress and explain ongoing plans and decisions clearly
  • Communication is key
  • Stress test your resource plan:
    • Consider allowing more time in the plan for people to stay on and tidy up
    • Consider whether internal staff are best placed to complete all tasks, or outsource externally

7. Change Management ‘101’

  • Consider all the same elements that you would in any major change project 
  • Stay flexible and keep an open mind re time impact:
    • Be generous with time obtaining buy-in up front, educating, communicating
    • Be prepared to repeat key messages and education several times
  • Expect to have to manage people’s emotions

This is the essential Checklist if you have to close a corporate treasury department down, which happens more often than most expect. It expands on the ideas and details given in the WEBchat​ on this topic.

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