Restructuring and Insolvency 2013—a year in review by Mike Jervis

The FTSE has risen 14.68% during 2013—it has not been the busiest year ever in the UK insolvency market, has it?

Mike Jervis, partner at PWC, reviews the year from an insolvency practitioner’s perspective.

Let me give you some thoughts on a whole host of interesting outcomes from 2013:

Zombie companies continued to walk

Despite exhortations from parties wanting to put a stake through the heart of such companies, banks and creditors have correctly identified that there is more value in a zombie preserving jobs and paying (some) creditors on time than the value lost through insolvency processes without a buyer. Some zombies that did fail, when restructured, failed again. For example, Blockbuster endured successive insolvencies in January and November 2013.

Corporate insolvency numbers continued to tumble

The administration total fell to its lowest level since 2004 and avoiding insolvency has become the new norm. Forbearance is key and large insolvencies should be planned insolvencies, like pre-packs of people businesses. Companies are consulting earlier, management teams are more careful, creditors are more supportive.

The pre-pack is alive and kicking

Pre-pack techniques continued to achieve the rescue of viable businesses and my memory this year is of people businesses being kept running precisely because this type of administration sale process is still available for viable companies: Manches, Seymour Pierce, Cobbetts, Lambert Smith and RSM Tenon

High profile debt sales

High profile debt sales have occurred and purchasers have demonstrated a genuine loan-to-own approach—the rescue of HMV exemplified this, where the new owner is genuinely interested in running a successful business. There are admittedly some less elegant examples, like Comet, but there always will be.

Company Voluntary Arrangements (CVA)

Large retailers discontinued the alarming trend of previous years when they thought—or were told—that the CVA was a panacea and a sure fire antidote to flawed business plans. CVA totals plummeted to their lowest levels for six years.

Retail sector

While we saw Jessops, Republic, HMV etc go into insolvency, the retail sector recorded far fewer ongoing shop closures than in previous years, hopefully marking some stabilisation in our high streets.

Consultations

As insolvency professionals, we took our public responsibilities seriously and engaged in consultation on pre-pack reviews (revised SIP16), the Jackson work on CFA’s, the EU Commission review on harmonisation of European insolvency law, the red tape challenge, the modernisation of Insolvency Rules and the Kempson review of Insolvency Practitioner fees among many others.

Administration expenses

We obtained partial clarity on administration expenses, with the Nortel judgement (Re Nortel GmbH (in administration)and other companies and other appeals [2013] UKSC 52, [2013] 4 All ER 887 and the Supreme Court clarifying that pension deficits do not rank above other creditors. We are also moving forward on the Game/Goldacre issue (Goldacre (Offices) Ltd v Nortel Networks UK Ltd [2009] EWHC 3389 (Ch), [2010] All ER (D) 54 (Jan), Lazari GP Ltd and another v Jervis and other [2012] EWHC 1466 (Ch)).

Lehman Brothers

The most recent administration report on Lehman Brothers International Europe, the largest ever English administration, stated that—‘there is an increasing likelihood that there will be a significant surplus after payment of all unsecured and Trust creditors...’ showing the benefits of UK insolvency processes—flexible rules, supportive judiciary, intervening when the issue requires it, respected professionals, a fusion of the benefits of business and law, not just one of those areas.

Looking ahead

As we leave 2013, I think the general outlook for business is now realistic—we know we are out of recession, but we also know that there are years of restructuring to attend to. Why? The most palpable issues would be the current austerity measures, the outlook for interest rates, the poverty of the consumer and the ability of lenders to take balance sheet losses.

So you may think it was quiet in 2013. I don’t think it was and I believe 2014 and beyond will continue to throw up challenging assignments for insolvency and restructuring professionals.

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