Corporate restructuring professionals are fighting somewhat of a phoney war at the moment, says Tyrone Courtman, partner at RSM Restructuring Advisory LLP. While the public’s expectation is that Restructuring professionals are busy, it doesn’t reflect our current experience, he says.
“The general feeling in the restructuring and insolvency profession is that everybody is pretty quiet. That's largely as a consequence of the government support measures that are clearly working.”
Landlords haven't been able to enforce for rent arrears or forfeit leases and disgruntled creditors haven't been able to issue statutory demands or winding up petitions unless they can show to the court that the company's inability to pay has got nothing to do with COVID. It means that struggling businesses aren’t being forced into positions where they have to engage with restructuring professionals.
“It would be a brave petitioner who would make a claim against a company to settle the debt or face winding up proceedings,” says Courtman. “All of the pinch points that would normally drive businesses to the likes of me have largely been stayed.”
As a result, businesses continue to tread water. All of these measures are morally the right thing to do against the backdrop of the pandemic and the government’s lockdown measures, says Courtman, but inadvertently they have saved some businesses who would otherwise have gone to the wall. “The psychology of many business owners is such that, while there is the prospect of a lifeline, they think: we’ll hold on and see what the next measure or key pandemic milestone is and see what changes those bring about in the Chancellor’s approach.”
However, Courtman senses there are many business owners who are at their wits' end and are experiencing what can only be best described as ‘situational fatigue’. They have been powerless to avert a deterioration in their businesses financial position for sometime, and want to find a way to bring their financial nightmare to an end.
“There are some who may be minded to simply ‘throw the towel in’ because they can see that, notwithstanding the government support, their efforts, even after the economy begins to return to some degree of normality are going to be fruitless against the scale of the losses and debt incurred over the last 12 months ,” says Courtman.
This thinking will gain momentum as time goes on, Courtman predicts, particularly as we come out of the financial crisis. If the recovery from this recession is anything like those that have gone before, then more businesses go bust as we come out of it than at any time either during it or entering the recession. And it’s all to do with the competing calls on working capital. Funding to cover recent pandemic losses, versus the funding necessarily required to fuel the business’s post pandemic growth.
Many Businesses have been accruing losses during the pandemic lockdown, largely funded by increased government debt. Eventually there will come a point where business owners question the merits of striving to repay those debts over many years or look to reimagine their business to make the most of future profit opportunities. “I suspect we may see a lot of that happening. With the extension of the chancellor’s support measures, that will probably now come towards the end of this calendar year and probably into next year.”
Courtman predicts that it will be a steady increase in demand for restructuring expertise, rather than a tsunami, as many others have predicted. He believes the government has clearly demonstrated that they will do whatever it takes to save the economy. Albeit the government support measures may be ineffective at convincing some of the merits of spending the next five-to-10 years, repaying down government sponsored pandemic debts.
“It is amazing how long so many businesses can limp on until they're finally forced to make a decision. Even if the government’s plan works and we’re largely free of COVID during the course of this summer, I can't see the government allowing HMRC to be heavy-handed in their approach to recovering unpaid taxes or to allow the state-owned banks to aggressively call in their debts. There's going to be an unprecedented amount of latitude, rightfully or wrongfully, in my view, which will ultimately result in many more zombie businesses in the economy.”
The focus appears to be all about job preservation, which is worthy, but it’s without consideration as to whether the jobs are meaningful or not, he says. Eventually, we will have to question what value those jobs bring to the economy and wider society, particularly if the UK wants to increase productivity in any meaningful way.
“It's going to be a brave person in the current political climate who goes back to a sort of slash and burn mentality as we saw in the early 1990’s. I'm not sure we'll ever go back there and nor would I want to see us back there, but there is going to have to be a difficult balance struck if we are to redeploy the country’s capital more meaningfully and reposition our economy,” says Courtman. “We've got a very distorted private enterprise free market; effectively what we've got is almost nationalisation through the back door. The government currently appears able to print as much money or to borrow as much money, at relatively negligible interest rates, as it wants. I can’t believe that isn’t ultimately without consequences. So, I guess we’ll all be fine, provided the music doesn't stop on your watch.”
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