The Great Comeback Series – Bouncing Back to Happiness (or are we?)

April 7, 2021
Jeremy Goldring


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Probably. But that depends on your perspective. And happiness, like all things in life except death and taxes, is a matter of degree.

Those of us who have operated in the distressed business environment for over 30 years have heard it said many times before: you are very soon going to be so busy. But it has never really come to pass. There has been no such thing as regular general economic boom and bust cycles for more than two decades; and while certain sectors have experienced more disruption and volatility than others, even the global financial crisis did not turn out to provide much-vaunted and hoped-for the manna from heaven.

The truth is that restructuring professionals are in demand when rapid growth or decline is experienced, and market forces are left to their own devices. Government interference and consequential uncertainty are our nemeses. We need a large number of businesses struggling for cash coupled with a large dollop of capital seeing opportunity. One without the other leads all-too-frequently to inertia. 

Businesses falling into insolvency processes is value-destructive. Ordinarily, they can’t stay in a process for very long if anything worthwhile is to rise from the ashes. Key staff, previously-loyal customers and critical suppliers will support it for only so long. 

Avoiding insolvency processes means paying debts falling due. Taking away (some of) the threats posed by not paying due debts serves to delay the commencement of insolvency processes. So, restrictions on creditors pursuing winding-up petitions, on landlords forfeiting for non-payment of rent and on potential liability for wrongful trading have all avoided destruction of value. So far.

End the restrictions and what happens? Simple, loads of companies go into administration or liquidation. Wrong. Or probably wrong.

Why? Because that achieves nothing for creditors. Most businesses of any scale have granted security over their assets to financial creditors, often our lovely banks. Unless there is value in those secured assets, enforcing security results (unless already provided-for) in a write-off, in turn (after a few of these) in a capital adequacy issue. It will be commercially prudent (if not a necessity) for the banks to support their customers.

Existing shareholders may not have the appetite (or resources) to provide the requisite cash because of the sheer size of the wall of debt and the consequently long wait for a return to equity value. The messages we are hearing from the banking sector (of undying love and affection for our customers who have suffered through-no-fault-of-their-own) are not entirely altruistic.

But it may not be so grim for the banks because by all accounts there is also a wall of pent-up cash looking for yield opportunities. What better tonic than a tsunami of consumer spending, a veritable feast of revenue streams. And the banks can (and will) help themselves by making new loans to potential buyers of their customers’ businesses.

So maybe, perhaps, could it actually just be that the perfect conditions for financial and operational restructuring are just around the corner? Struggling businesses plus available opportunistic capital. In a whole host of sectors. All across the globe. 

Or will kill-joy governments acting alone or in concert take action which will distort the picture, either continuing or introducing new measures relaxing cash needs or promulgating sufficient uncertainty?

Be kind to your friendly restructuring professional. We actually never had it so good and maybe we never will.