2 January 2008
Whats it all about?
Companies exist to make money for shareholders. Putting it so bluntly serves to demonstrate how acute the responsibilities of capitalism sometimes are. Of course companies do other useful things make valuable products, employ people, fulfil public services and benefit the community in other ways but they exist primarily to make money. Consequently, a lot of the thinking within companies is towards making money, how profit can be achieved, maintained or improved, how the best people can be found, employed and retained, how the company can keep ahead of the competition with new products or clever ways of marketing or pricing. Hopefully the experience of a company is towards this money-making objective.
But what happens if things go wrong? If the product does not go down well in the market, or a competitor beats it with something better, or if the company loses money on a speculative venture, or if a major debtor fails to pay a bill, or if technology overtakes its reason for existence? There are many reasons why a company can slip into insolvency or possible insolvency but whatever the reason, the effect can often be crisis.
What is the solution to the crisis? Can the company survive by rationalising its business or selling off parts of its enterprise? Is the solution merger or a takeover of a smaller competitor with better products? Can the directors carry on trading and, if so, how can they avoid the legal pitfalls of wrongful trading, which can sometimes lead to personal liability or imprisonment or both? Has the company fallen so far that it cannot be rescued outside of a formal insolvency process and, if so, which insolvency process is the right one? Should a competitor buy a company in trouble and, if so, how does that competitor bid for the assets and ensure that it too is not tainted by the insolvency? How should the employees and their pension funds be protected? If the company is listed on a stock exchange, what role does the stock market and the stock exchange have? If the company has been the victim of fraud or if executives in the company have themselves committed fraud, should the police or the Serious Fraud Office be involved?
At the heart of all of the above questions is a legal solution. Without a careful application of the law to what is often a very dynamic and fast-moving situation, it is not possible to identify and implement a solution. This area is therefore a fascinating part of the law for those interested in applying legal solutions to rapidly evolving problems where the very life of a company and all it stands for is at stake. For those who prefer their law at a leisurely pace, or from the cloisters of a library, or without the drama of a collapsing company, or redundant employees or tight deadlines, this is not the area of law for you.
However, if it does interest you, then prepare for a highly charged but technical, never the same day twice, rollercoaster ride. And dont make the mistake of thinking that lawyers who practice in the area are like legal vultures hovering over the commercial battlefield and go around bayoneting the wounded. There is nothing more satisfying than having taken part in the successful rescue or restructuring of a major company with jobs, and therefore families, secured and financial meltdown avoided. It is possibly as close as a lawyer sometimes gets to being very involved in commerce and because most companies these days are so complex, this area of the law touches every other area of the law from tax to real estate, pensions to company law, litigation to employment law, regulatory to competition law. Also, if the company is an international one, as they increasingly are, it involves interplay between the laws of many different countries and so can be quite an international field.
Insolvency lawyers need a good knowledge of all areas of law and should have the ability to pick up knowledge of different industries very quickly. They also need the temperament to be able to work in an area that often involves the end of something, rather than the start of something new.
Recent developments Insolvency lawyers have had a quieter period than their colleagues in corporate and banking departments. However, some teams are already gearing up for a downturn in the economy.