Insolvency by any other name...
31 May 1999
9 September 2013
18 March 2014
8 August 2013
20 February 2014
28 January 2014
There is not going to be a recession. True, this was not the prevailing wisdom last year, when the Asian economies were crashing and observers (read: journalists) were gloomily predicting doom. But, though the looming threat of recession in the UK has receded somewhat in the last nine months, it does not mean that insolvency and restructuring specialists are any less in demand.
Part of this is due to the so-called "rescue culture". Originally promoted by Peter Mandelson - and taken up with some gusto by his successor at the Department of Trade and Industry, Stephen Byers - the principal idea is to give companies more breathing space to formulate a rescue package.
Most insolvency professionals are dubious about the Government's enthusiasm for US-inspired debtor-driven techniques, although many greet the idea of rescue - as opposed to formal insolvency - with unalloyed enthusiasm. In fact, ask an insolvency professional nowadays - whether a lawyer or accountant - and they will protest that they are in the business of "turnaround".
"It's an uphill struggle to make people like the word 'insolvency'," admits Allen & Overy partner Gordon Stewart, "and when our work covers such a wide range and when so much of it should be called rescue, it seems odd to be focusing only on one aspect - insolvency, the very aspect people find most difficult."
In truth, this change of emphasis is driven less by the professions and more by the banks. The UK system is firmly creditor-driven, with banks and other secured lenders taking pole position. Because of this, the banks suffered a PR disaster in the last recession, when they were accused of forcing too many companies out of business - a fact which most lenders are only too aware of. Nowadays any responsible lender talks not of receivership but of rescue, and most banks have developed more reliable "early-warning" systems to help prop up companies at an earlier stage of the game.
"The rescue culture is so fixed in the business practices of the major lenders that formal insolvencies are absolutely the last resort," says Herbert Smith's Stephen Gale, who is due to be next year's president of the Society of Practitioners of Insolvency (SPI). "Businesses that in the last recession would be in receivership are now given more money."
This new rescue culture has the emphasis firmly on preventative advice. Lenders and professional advisers now use terms like "turnaround", "corporate recovery", "rescue" and "reorganisation". And this means that the very word "insolvency" becomes problematic. Indeed, many lawyers - in common with the accountants - now term themselves turnaround specialists rather than insolvency specialists.
It also means that professionals no longer have to have a specialised insolvency qualification to get work in any of these areas.
For instance, KPMG partner Mike Wheeler, an acknowledged star in turnaround work, does not have an insolvency licence but has, nevertheless, advised on major rescues such as EuroDisney.
So with the market changing, the professional body must change with it. Such is the thinking at the SPI, whose members include both lawyers and accountants. Current president Alan Bloom, partner at Ernst & Young, and Stephen Gale, have been formulating proposals to shake up the organisation.
Their proposals will mean a change of name, constitution and, most importantly, membership criteria. And if they go ahead, the organisation will be open for the first time to professionals without an insolvency licence. Symbolically, the official SPI journal, previously called Insolvency Practitioner, has already been reborn as the rather snappier titled Recovery.
Strong stuff for the thousands of insolvency practitioners, often at smaller, regional firms, who exist on a diet of liquidations work. Many of them feel that the debate has been hijacked by the larger accountancy and law firms, which have been targeting the larger turnaround jobs.
Bloom is diplomatic: "What we're actually trying to do is broaden the spectrum of work and solutions that the membership offers," he explains. "That way we're covering the whole cross-section from consensual solutions to formal insolvency solutions. We think that is more appropriate to the rescue culture, which looks as if it is here to stay."
However, Bloom and Gale are clearly not underestimating the task of selling it to the SPI members. The pair will be presenting their recommendations to an extraordinary general meeting of SPI (the date is not yet fixed), at which they have committed to obtain no less than 75 per cent majority in order to sanction the implementations. And they have even started to plan their campaign; not only is an explanatory video in production, but Bloom and Gale are organising meetings around the country to sell their message.
As far as Stephen Gale is concerned, the process is inevitable. "The market is telling traditional insolvency practitioners that there is a need to change," he says. "The SPI [as currently constituted] really only services the insolvency marketplace, though increasingly its membership is serving a much wider marketplace. And we have to envisage a different profession and collaborate with those people who are not IPs, but who actually work on turnaround."
Catrin Griffiths is a director of New City Media.
In the aftermath of Woolf and with the general slowdown in insolvency work, on emigh think that the specialist bar would be suffering. However, this is not the case for the leading sets in this area-not least because the work is concentrated in a few hands. Chief among them is 3/4 South Square, the chambers of Michael Crystal. Barristers from the set were variously involved in most of the large collapses of the last recession, from Maxwell to Canary Wharf.
The departure of John Highman QC for Stephenson Harwood may have been symbolic to some, but 3/4 South Square's pre-eminence in the field means that it is unlikely to get badly burned by the onset of the rescue culture, with its emphasis on informal, or non-court-based turnaround techniques. Indeed, in more recent times members of Crystal's chambers have been heavily involved in high-end advisory work, most notably on Barings and the Lloyd's Reconstruction and Renewal plans.
Gabriel Moss QC-whose cased last year included Re Mark One, which overturned Re Powerstore, much to the relief of many lawyers-is lauded by solicitors and accountants as the doyen of the insolvency bar. He is one of the cast of thousands currently working on the Bermuda Fire & Marine case, instructed by Clifford Chance for the liquidators. Yet such is the talent at 3/4 South Square that there is much to choose from. Among the silks, Michael Crystal QC-rencently instructed by Lovell White Durrant on Morris v Agrichemicals-stands out. With Mark Phillips ttaking silk in the last batch of QC appointments, and with Robin Dicker universally tipped to take silk next year, 3/4 South Square has undisputed strength across the board. Phillips himself was heavily involved in Maxwell, and the two recently appeared on opposite sides on Bank of England v Three Rivers (Phillips for Freshfilds and the Bank of England; Dicker on the other side with Lovell White Durrant). The other traditional sets include Erskine Chambers, Enterprise Chambers and 7 Stone Buildings. Erskine Chambers, which is rapidly becoming known as the alternative 3/4 South Square, is praised by a number of solicitors for its breadth of approach, with Robin Potts QC (currently on Bermuda Fire & Marine) and Leslie Kosmin QC particularly rated.
The heavyweight commercial sets have also built up their insolvency practices. One Essex Court, which boasts Elizabeth Gloster QC, is a classic example. Gloster, who was involved on the Heron Group reconstruction, is also in Bermuda on the Bermuda Fire & Marine case. Essex Court Chambers, meanwhile, is building up its presencein the area through two well-regarded senior juniors: Richard Millett (currently on Bermuda Fire & Marine) and Sue Prevezer, latterly of 3/4 South Square.
In a world of increasing consolidation, where the accounting "bigfive" hold sway, the insolvency field provides some welcome relief.
The usual giants-PricwaterhouseCoopers, KPMG, Ernst & Young and Deloitte & Touche-have strong insolvency and restructuring teams. But they are being increasingly challenged by firms outside the big five-most notably Grant Thornton and, on a niche level, Buchler Phillips.
The merger of Price Waterhouse and Coopers & Lybrand brough together arguably the strongest insolvency and turn-around practices in the business. Their combined strengths comfortable cover all the bases, from multi-bank workouts to volume liquidations, as well as a global capability second to none. Its CV includes the public company side of Maxwell, where it instructed Norton Rose, and Polly Peck, where it instructed Cameron McKenna. More recently, it landed Peregrine, for which it brought in Clifford Chance-a job which has dominated its Asian practice over the last year: What's more, both PW and Coopers had exceptionally strong track records in the burgeoning field of insurance insolvency, and the merger has only served to confirm PwC's pre-eminence.
KPMG is PwC's nearest rival in insurance insolvency, but also has all-round strengths in general insolvency and turn-around. The firm managed to take the other big Asian collapse-Japan Leasing-from under PwC's nose last year, instructing Linklaters. Of course, had KPMG merged with Ernst & Young, as was mooted last year, then the combined insolvency practice would have been formidable. As it is, both KPMG and Ernst & Young trail PwC in terms of depth of resource, but still maintain sterling reputations. Ernst & Young, in particular, has set out its stall as being able to advise on the most complex of situations. It handled the successful Canary Wharf administration, along with Allen & Overy, and Barings, where it brought in Slaughter and May. Its insurance insolvency practice, while smaller than PwC's, is perfectly-formed.
Deloitte & Touche, which ran the BCCI liquidation along with Lovell White Durrant in the early 1990s, has been perceived to have been quieter of late, probable due to a series of internal rstructurings. But new head Nick Dargan-not long down from Manchester-has made a splash in London.
One of the biggest mysteries is the virtual disappearance of Arthur Andersen in this sector. Despite its handling of Ferranti with Allen & Overy and Leyland-DAF with Wilde Sapte, and its unquestionable global capacity (it is beavering away in Brunei), there is little doubt that it has faded domestically.
Taking Arthru Andersen's place among the insolvency hig five is Grant Thornton, which recently got the Griffin Trading job, where it instructed Stephenson Harwood.
Meanwhile, at the edges of the elite is niche insolvency firm Buchler Phillips, packed with Arthur Andersen exiles. Its capacity for attracting high-profile work (Maxwell private companies; Knickerbox; and a whole slew of foot-ball clubs) is not underestimated by its rivals.
Outside this main grouping are a number of firms which unapologetically target the small to medium enterprise sector: BDO Stoy Hayward, Baker Tilly, Horwath Clarke Whitehill; Robson Rhodes, and Pannell Kerr Forster. The potential merget between Robson Rhodes and Pannell Kerr Forster would have been interesting, since both have make small inroads into the financial services sector. With that merger now off, it remains simply a "what if?". But such is the pace of change in the accountancy market that the prospect of other mergers-with interesting effects on the insolvency sector-is tantalising.