Company insolvency is something we tend to link to recession. In hard times, when the economy as a whole is struggling, it’s inevitable that some businesses will be unable to stay afloat. The picture many of us have of turnaround and insolvency practitioners is of individuals who break up and sell off the assets of the latest victim of an economic downturn, and of course, that does play a part in their role. However, in a recovering economy, restructuring and rescuing companies that have overstretched themselves forms an integral part of their work.
The reality for an increasing number of companies is that an economic recovery has the potential to be just as destabilising as a time of economic bust. As counter-intuitive as it may seem, a healthy and growing economy actually brings its own distinct set of pitfalls entrepreneurs can fall foul of. Business owners can be tempted to take more risks; increase their liquidity levels to fund new ventures; and take on more orders than they can handle. The result can be a highly geared and often cash strapped business.
The role of turnaround and insolvency practitioners
In boom times, insolvency practitioners and company rescue experts still have an important role to play to save as many viable businesses they can, while ensuring any value being created by struggling companies can be captured and used again. Even if a business is beyond the point of no return, it might be possible to use an intellectual asset to provide value to the economy as a whole, even if the founding business no longer operates in its original form.
An important part of the practitioner’s work is to put the proper mechanisms in place to ensure a creditor’s returns are maximised in a company insolvency situation. In any recovering economy, it is essential lenders have the confidence to invest in businesses, and the ability to recover funds in the event of insolvency increases the likelihood that such investments will be made.
The restructuring and turnaround of viable companies is hugely important in a time of economic recovery. Company rescue can help to save jobs, protect intellectual assets and make a valuable contribution to the health of the UK economy. At a time of economic growth, there is more appetite to invest in distressed companies, and this can increase the number of company rescue options open to practitioners.
Maximising value and keeping businesses afloat
Insolvency advice and formal procedures, such as company voluntary arrangements (CVAs), can play an important role in maximising the value of struggling businesses every day. The delivery of free, pre-insolvency advice is one small way practitioners can help businesses stay away from trouble and continue to trade. The ability to deal with such cases quickly and competently, whether that means rescuing and recovering the business, paying creditors, or releasing company assets to drive new business creation, is central to the health of the economy.
Straight forward creditor negotiations are not neglected either as more and more financial directors realise they often need professional help pulling together a proposal for an angry or frustrated creditor. Very often an independent and experienced view can help both parties to agree terms and diffuse an often heated situation and this is particularly the case when HMRC are involved.
Whatever strategy a turnaround practitioner chooses to take, it is their ability to gain a clear and early insight into the cause of a particular business’s problems that makes them so invaluable. Every insolvency case is different, as are the people, companies and assets involved. Developing an accurate understanding of the financial circumstances of a company and making the key commercial decisions required to steer the business away from trouble is hugely important.
It’s clear to see that the role of insolvency professionals is equally important in times of boom and bust. When the economy is growing, they can prove instrumental in rescuing and recovering struggling businesses, or preserving the value a business contains, whether that’s in its intellectual property or workforce. The key is for business owners and company directors to act fast while there are still plenty of potential methods of redress for turnaround practitioners to explore.
How can we help?
At Jameson, Smith & Co. we can provide experienced negotiation expertise along with pre-insolvency advice you need to steer a course away from trouble, or put the formal insolvency procedures in place to turn your business around. Get in touch today for confidential, no-obligation company debt advice call 08000 746 757.
Written by: Mike Smith