I read a very interesting article recently highlighting this
question and it may seem an odd question to ask, but do insolvency practitioners actually rescue companies, or simply put them into liquidation? Put plainly, do insolvency practitioners
rescue companies? The question was posed by a well-respected rescue CEO and
consultant with over twenty years in rescuing businesses. My experience is, I
have to say, not good when answering this question. I have been advising large
medium and small companies for over thirty four years now and rescuing a
failing business is not for the faint hearted, that’s for sure. So why is the
question even being asked? Well I suspect this well respected gentleman has had
similar experiences to me over the last five years or so, through the heat of a
recession.
Unfortunately, I do believe insolvency practitioners
generally have lost the appetite and more importantly lost valuable experience
in rescuing companies and have put more focus on more expedient liquidations. In the last
year alone we have been contacted by around 2-3,000 company directors seeking business debt advice. The majority of directors that we have advised who had also spoken previously to competing insolvency
practitioners were genuinely surprised and greatly relieved when we discussed how we may be able to rescue the company and not simply put it into company liquidation. Now,
it is not possible to rescue all companies and I accept there are a lot of so
called zombie companies out there, but shouldn’t we at least work from the
premise of ‘how do we save this company’ rather than how quickly can we close
it?
Certainly the majority of insolvency practitioners appear
driven more by regulatory and compliance matters than saving the company. I
guess this is understandable when they are subject to spot checks and can lose
their licence if not completing procedures thoroughly enough, but is this the
real reason or a symptom of something else?
Over the last five years or so, since the recession, we have seen and heard of
serious investment in compliance policies and procedures which has turned into
an entrenched dogma creating a completely different type of insolvency practitioner to that which
existed 7-10 years ago I suspect. There
is something else though when you look at the increased numbers of staff. The
new kids on the block don’t know anything else other than compliance, regulations
and following the necessary processes and many have no first-hand experience of rescuing a
company, or negotiating with creditors over business debts.
With the economy
improving and the Insolvency Service cutting down in size, it may be that a
downturn in insolvent liquidation cases may well be followed by a number of
insolvency practitioners starting to struggle and being taken over. It may seem improbable, but there is
already evidence in the market place that insolvency practitioners are trying
to change their approach as they begin to struggle. The insolvency practitioners that cannot adapt to the changes will struggle to
survive in a market where desperate practitioners are already pushing
liquidation fees down in an attempt to reel in more business whilst their profit margins get squeezed. A note of caution here; far too many directors do not think to check the website of insolvency practitioners for genuine testimonials, or ask to
speak with the insolvency practitioners' past clients. This should always be the first action that any company director should take who is thinking of engaging, or referring an insolvency practitioner.
The 'big boys' appear to have swallowed up a significant
portion of the ‘company rescue’ talent, but not every SME can afford their fees and in any event, these bigger firms of insolvency practitioners will continue to ‘cherry pick’ their clients based on certain prerequisites. The
average SME traditionally turns to his/her accountant for help and that is as it
should be as the first port of call. Perhaps the SME accountants should check who they refer their clients through to in future more than they previously have when they want a
company to be rescued?
Back to the question: Do I think insolvency practitioners do
turnaround? Well, the larger clients will probably be able to afford the big
names, but the smaller companies are left to a roll of the dice as to whether
someone will genuinely try and turn the business around, or simply put it into company liquidation.
There is a simple solution though – check the websites and
how about asking to speak to past clients?
