Solution vs Problem Solving - Business ConsultingIt has been an interesting 12 months in the world of insolvency and restructuring. The spotlight has been firmly on the profession following the findings of the Graham report on pre-pack administration sales in 2014, the Small Business, Enterprise and Employment Act 2015 (“SBEEA”) coming into force on 26 May 2015 (in an endeavour to “make the United Kingdom the most attractive place to start, finance and grow a business”1 (see our firm’s blog article by Chris Keane and Sian Taylor)) and the latest statistics showing continued economic recovery in the UK despite the continuing volatility in the global economy (in the first quarter of 2015, only 4052 companies entered a formal insolvency process, meaning that corporate insolvencies are at their lowest levels since 2007).

While the economic impact of the Conservative victory in the general election remains to be seen (the next quarterly UK gross domestic product figures are due in July), now is a good time to analyse the impact of what insolvency professionals have achieved for UK business over the last year.

In R3’s latest publication “Why Insolvency Matters”, R3 reported the following estimated statistics for the insolvency profession in 2013-14 in relation to UK businesses:

  • 6,700 businesses were rescued through formal insolvency procedures (equivalent to 41% of businesses that entered a formal insolvency procedure)
  • 230,000 jobs were saved through formal insolvency procedures
  • 10,400 businesses were rescued taking into account formal insolvency procedures and other work that insolvency practitioners (“IPs”) do with businesses
  • 540,000 jobs were saved taking into account formal insolvency procedures and other work that IPs do with businesses.

The UK insolvency regime is premised on a “rescue culture” of supporting businesses in times of financial hardship and this sentiment is echoed in the recent legislative reforms introduced by the SBEEA which aims to cut red tape and facilitate the growth of smaller business enterprises. There is, however, a common misconception that engagement with an insolvency professional means it is the end of the road for the business in question. The above statistics belie this misconception and need to be widely advertised to highlight the benefits of what insolvency professionals bring to a distressed business and the value we can add. The message is that an insolvency procedure does not always equate to permanent business failure – as the above statistics underline, consultation by a business in distress with an insolvency professional at an early stage will ensure engagement with all stakeholders to enable a strategy to be implemented to rescue the business, save jobs and ensure that creditors receive as much of their money back as possible. Failure can be turned around, and insolvency professional are a critical part of that process.

 1 From the Queen’s speech before the House of Commons on 4 June 2014