Demystifying Restructuring

Dominic Dumville, Corporate Restructuring Partner looks at debunking some of the myths surrounding the Restructuring and Insolvency industry. Dominic became an insolvency practitioner in 2015 having previously worked in corporate finance. He particularly enjoys the forensic side of the role in discovering assets that might have been overlooked and finding a way forward for businesses in trouble. This article is the first in a series that he will be writing with the goal of demystifying the industry.

The myths

From my experience as a non-insolvency professional looking in from the outside, and my current experiences as an insider dealing with all kinds of stakeholders, I’d suggest that the average business person has a poor understanding of what goes on in the Restructuring and Insolvency industry. The comments I hear in response when, at a business function, I tell someone I’m an insolvency practitioner give me the impression that behind the poor understanding is often a suspicion and fear. I’ve had business owners tell me that I’m like, ‘the grim reaper of the business world’, and state (jokingly, I hope) that they shouldn’t be seen speaking to me.

Another difficulty my peers and I face is that, in some circles, the insolvency industry is struggling to shake off a reputation of being a place where underhand, under-the-table deals are common place and excessive fees are charged for work of little value.

I am convinced that this poor understanding held by business owners (and sometimes shared with professional advisors) results in many businesses failing when, with the right help at the right time, something could have been rescued. After all, not all insolvent companies contain bad businesses.

So, what is restructuring and how is it different to insolvency?

The short answer is, they are one and the same. It was the Insolvency Act 1986 (the Act) that codified and regularised common practices at that time and defined precisely what an Insolvency Practitioner should be and do. Since then, the Act has been added to and amended to create what is now considered to be a world-leading regime. These amendments over the years have expanded a practitioner’s toolkit such that a distressed business in the UK now has a greater chance than ever of being restructured and rescued. Over this period, the industry has adopted the label ‘restructuring’ to reflect better the rescue culture.

When should I take insolvency advice?

If you’re asking yourself this question, then the answer is probably now. A director who considers an Insolvency Practitioner to be the corporate undertaker will put off making the call for as long as possible. However, a director who understands the value of buying expert advice when it is needed, will not only get a better service, but will give the company the greatest opportunity to exploit the practitioner’s toolkit and avoid altogether a visit to the corporate undertaker, i.e., a chance to be turned around. As I said, not all insolvent companies contain bad businesses.

Is insolvency advice expensive?

Specialist bespoke advice is never cheap, but the cost of not getting the right of advice when its needed can be far greater in the long run. This principle is true in all walks of life; whether you’re considering going to the physio for that dodgy knee or taking your car to the mechanic to have that strange noise checked out.

Having said that, like me, many insolvency practitioners are willing to give a free initial consultation when the directors and I explore, in lose terms, the problem and what might be done. Thereafter, I typically agree a fixed fee for the initial advice, based upon a pre-agreed scope; that way both parties know exactly what’s expected. It may be frustrating to read but the cost of that initial advice can vary hugely, dependent on the work being done and the complexity of the situation. It could be anywhere between £3,000 and £53,000. It is likely that the findings of that first piece of work will dictate what happens next.

Will anyone know I’ve taken insolvency or restructuring advice?

The short answer is no, and as directors it would be unusual for you to have an obligation to tell anyone.

It is imperative I talk to an Insolvency Practitioner?

I always answer this question with a reminder that directors have a duty, always, to act in the interests of the company, and that includes getting the appropriate professional advice when facing situations outside their own area of expertise. The company’s accountant may offer some useful insights, and the mate at the pub may have been through something similar, but neither are professionally qualified nor appropriately insured that you can reasonably rely upon their opinions. When you have something of value that’s worth preserving and protecting, be it your knees, your car, or your company, you ask for expert help.

If you would like some help or advice on this subject, please contact Dominic for a free consultation.