The human factor in turnaround and recovery

A look at the court lists and the notices on the London Gazette will confirm an uncomfortable and not unexpected truth. Business failures are ticking up.

The latest seasonally adjusted figures show that 5,747 companies became insolvent in the first three months of 2023. While this was 4% lower than the previous quarter, it was 18% higher than the first quarter last year and 37% higher than the same period in 2019 before the pandemic.

They also show the majority of insolvencies – 4,739 – were creditors’ voluntary liquidations (CVLs), a process where directors close their business voluntarily and which are close to their highest quarterly level since records began in 1960.

In the world of the insolvency practitioner and business adviser this is a time for calm.

For Daniel Booth, chief executive at Leonard Curtis in Manchester this isn’t altogether a surprise. The pandemic created stress in the business world for obvious reasons, but the reluctance of HMRC, and other key financial stakeholders, to issue winding-up petitions, and to grant some forgiveness to businesses operating on the edge put off a day of reckoning for many.

“During the pandemic we saw a decline in numbers, because enforcement action was taken away from creditors,” he says.

“For businesses who had empty order books, we would say to them that they were insolvent, but because there was no external pressure many of them thought they’d ‘see how it goes’.

“Landlords couldn’t chuck you out, but that field has now been levelled. We are now seeing statutory demands and winding up petitions from HMRC amongst others.

“It’s no surprise that numbers are ticking up. Directors now have a catalyst to do something. Our role is to provide emotional support who aren’t in a great spot,” he adds.

The conversations that then follow from a first difficult initial confessional are the most important and life-changing many business owners will have, he recognises.

But at the core of it, he says, there has to be an honesty about what they hope the outcome will be, as well as what went wrong that led to the business falling into distress.

“The human factor is so important. We see people come to us who aren’t sleeping, they’re worried about losing their house, they’re tempted to raid their savings, we advise them not to do anything hasty.

“Our job is to come up with credible solutions to actual problems. The staff want to know they are going to get paid and that they’ll have a job.

“In so many instances we can take them through a process that helps them to get their enthusiasm back, to motivate staff and to get the business back on its feet.”

There will be a range of options available to a business, he says. The key is to act decisively and seek professional support.

“We help people take a step back from the situation, which usually makes it easier to identify possible solutions,” he estimates.

“It’s almost always necessary to be proactive when faced with significant problems.”

He says at the initial meetings, key issues that affect a company’s finances are analysed and solutions developed to tackle the most pressing financial concerns.

When a company is under severe financial pressure, tough decisions must be made for its longer-term interests, he says and this could mean letting go of relationships with trusted suppliers and customers which can be a difficult and distressing process but it is advisable to make these tough decisions whilst the decisions are for the business owner to make.

Restructuring a business doesn’t have to be a depressing series of cuts and major surgery. It can give it a new lease of life – re-focussing on areas that deliver more sustainable returns.

“To present a viable route forward for a company and its finances, we create a full-scale restructuring plan, including details of debt management and consolidation strategies.

“Getting specialist advice on the most pressing areas at the right time can make all the difference.

“Trusted impartial and expert advice is always available for companies in all levels of distress.

“This third-party support makes a significant positive impact on the outcome,” he says.

For Leonard Curtis there will always be a focus on corporate restructuring work – looking at where the business can rescue and recover.

“However, the fastest growing side of our business is in positive, non-insolvency solutions. Funding and legal services have turned in record performances in the last 12 months and will represent an increasing percentage of our turnover.

“This will provide more variety of work – to help SMEs solve a wider range of problems at all stages of a business, not just when they are dealing with a crisis – and allow us to capitalise on a dynamic asset-based lending market and increasing interest in buying financial and legal services from one credible brand.”