Creative Restructuring Starts with Diagnosis
TL;DR
Good restructuring starts with finding the real problem. In the Coopers & Lybrand case, one fact, 200 motions, and appeals without a single win pointed to the solution: change the forum. Bob Thornton argues that creativity, sound judgment, and a steady hand under pressure matter as much as legal expertise.
When a troubled company walks into a restructuring lawyer’s office, it usually believes it knows what the problem is. According to Bob Thornton, founding partner of Thornton Grout Finnigan LLP, that is often not the case.
“A lot of people don’t know what their real problem is when they come into the office,” Thornton tells Reviving Giants host Drew McManigle.
Some problems are obvious, he says. A company that cannot make payroll on Friday knows exactly what it needs. In other cases, “you need to do some detective work to figure out what the problem is before you can get to a solution.”
Zero for 200
Thornton’s clearest example is the Coopers & Lybrand case. The Quebec branch of the accounting firm had audited a company called Castor Holdings and failed to detect a fraud by the client. Lenders lost money and sued. The litigation ran for 20 years, with every possible issue contested up to the Court of Appeal of Quebec and the Supreme Court of Canada, and a final judgment — with interest — in the billions. Because Coopers & Lybrand was a true partnership, some 400 former partners were potentially liable, and the plaintiffs made clear they were coming after all of them.
When the firm came to Thornton’s team, he learned something striking: “Of the 200 motions and appeals over the course of 20 years of litigation, they had won zero.”
“I don’t know how you even do that,” he adds.
For Thornton, the number was the diagnosis. “That was a shocking fact to me, and that was what made the solution obvious,” he says. His advice to the client was blunt: “Stop sticking your hand in the blender.” The case needed to get out of Quebec and into a different forum.
The team filed under the CCAA in Ontario, a move he calls “a little bit creative” because the statute is not supposed to technically apply to partnerships. “But we found a way,” he says. The solution combined what was then a novel synthetic bankruptcy approach with securities law exemptions to raise money without a prospectus and eventually produced a resolution.
“We Make Precedents”
Thornton describes creativity as central to how his firm works. “When most of your days are live fire drills, creative solutions are everything,” he says.
“At TGF, we say, ‘We don’t follow precedents. We make them,” he says, adding that others come to the firm “when they seemingly have run out of options.”
That approach also shows up in his definition of a historic case. He points to the recent tobacco claims restructuring in Canada, where “for the first time ever, an entire industry was restructured through parallel but coordinated court proceedings.” Three companies, each in its own proceeding, were coordinated with the other two. By his account, it took six years to reach the main deal through a court-mediated process. The claims were on the order of $1 trillion, and one of the judges overseeing the case called it the most complex restructuring in Canadian history.
The Same Question for Every Client
Thornton says his perspective does not change much depending on whom he represents, whether creditors, monitors, boards, special committees, or governments.
“I ask myself, what is the practical, reasonable commercial solution here?” he says. “And no matter what that is, we will find a way to make that happen.”
What changes is how he communicates it. An owner-operator who has never been through a restructuring needs patience and a lot of explaining, he says, as they realize they will have to make decisions based not on the best outcome but on the “least worst outcome.” Sophisticated bondholders have seen it all before. Governments operate on timelines that can stretch for years, even when the matter is urgent.
Leadership Under Pressure
McManigle frames Thornton’s career as a reminder that restructuring “isn’t simply about companies in distress. It’s about leadership under pressure.”
Thornton tells entrepreneurs up front that the road will be challenging. “This is going to be hard,” he says, “but if you make it through this, you will be a much better business person than you were before.”
He is also candid about the chaos. Quoting a friend, he says bad news in a restructuring is like cockroaches: “There’s never just one of them. The bad news comes in droves.”
Thornton says he leans on Kipling’s lines about keeping your head when everyone around you is losing theirs. He’s been told by those around him that he is a calming presence in the middle of turmoil.
He offers one more image, from a particularly stressful day: feeling like the hull of Noah’s Ark, “the thin line between flood waters and a zoo.”
Takeaways For Leaders
- Diagnose before you prescribe; many companies do not know their real problem when they walk in.
- Look for the fact that makes the solution obvious, such as a 0-for-200 litigation record.
- When there is no playbook, creativity and a willingness to set precedent are valuable skills.
- Start every engagement with the same question: what is the practical, reasonable commercial solution?
- Expect hard decisions and bad news to arrive in clusters.
Listen to the Full Episode
Reviving Giants is presented by MACCO Group and hosted by Drew McManigle. To hear the full conversation with Bob Thornton on diagnosis, creativity, and leadership under pressure, listen on the Reviving Giants podcast page or wherever you get podcasts.
