Turnaround complements insolvency
There is a debate about whether insolvency procedures and turnaround are compatible and whether insolvency practitioners “do” turnaround. My views are firmly that turnaround and insolvency procedures are both part of the broad spectrum of business restructuring.
Turnaround means different things to different people and is often an abbreviation of operational turnaround – a specialist form of business management more the realm of executives, perhaps with financial specialisms, than of advisers or IPs. To some its meaning is broader and covers restructuring outwith formal insolvency.
Whatever the language used, I believe that bringing to bear the appropriate skills in the situation at hand is crucial. As an IP I have been introduced to insolvencies by a number of the country’s leading turnaround professionals, and conversely I have introduced some of them to distressed businesses that needed their skills.
Why does this debate matter? Business distress has never warranted a one size fits all approach. When there is a risk that creditors might go unpaid, bespoke advice and action – even for small businesses – is critical. Businesses are, after all, unique combinations of resources, especially to the people most affected by their failure or success.
We have a rescue culture in this country and, increasingly, across the EU. Today’s reality is that the formal intervention of insolvency proceedings not only adversely affects asset values and stimulates claims, but also introduces significant costs. It should therefore be avoided in cases where there is a good alternative – but otherwise embraced.
Sometimes, especially given the current state of the economy, with negligible interest rates and political disincentives for banks to recycle the resources of distressed businesses into new entrepreneurial ownership and create value, a formal insolvency procedure is required.
Realising locked-up stakeholder value, perhaps using insolvency moratoria or debt compromise to facilitate the restoration of profitability, is how insolvency can be used constructively. Two of our four case studies returned the company to health after a CVA and one avoided insolvency altogether.
The Restructuring and Insolvency profession has plenty to offer.
Date: 1st November, 2013
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