Doing brisk business during the downturn

INSOLVENCY practitioners (IPs) are often portrayed as the grim reapers of the business world. When their names appear in newspapers, it is usually a sign that something has gone horribly wrong and that staff, customers and suppliers have been left out of pocket; factory gates padlocked and handwritten notices Blu-Tacked to windows.

In the past couple of weeks, we have had tearful staff call The Northern Echo after administrators have told them to clear their desks, hand in door passes and leave by the nearest exit.

Their public image might be of the undertakers of the business world, but IPs themselves would prefer to be regarded as the paramedics.

Insolvency trade body R3 says its research has shown the importance of an orderly wind-down of failing businesses.

It found that, in 2009, more than a quarter of corporate insolvencies were caused by another company’s insolvency – the so-called insolvency domino effect.

During the depths of the downturn, hardly a week went by when a business didn’t fail.

The recession has been particularly cruel on people working in retail and in construction.

The pace of retail insolvencies this year is on track to deliver further blows to a sector that endured a miserable 2012, the Centre for Retail Research (CRR) has said.

Last year, the industry suffered its worst losses since 2008, as a succession of famous names fell, including Comet, JJB Sports, Clintons Cards and Durham-based Peters Bakery.

Upbeat indicators for GDP, exports and employment have suggested that the economy is on the mend. But retail’s woes have continued to undermine the image of Brits as a nation of shopkeepers.

In the past few weeks, two renowned North-East chains; gifts and furniture specialist Collectables and the Finlays newsagency have collapsed.

After a wretched start to the year, building trade bosses have been making optimistic noises over the summer.

A total of 625 construction firms went out of business in the first three months of this year, with failures in the North-East rocketing by 27 per cent, PricewaterhouseCoopers (PwC) reported.

There have been more than 5,500 construction insolvencies in the two-year period since spring 2011, which has claimed thousands of North-East jobs.

At times, it has seemed that the only people immune to recessionary pressures were the administrators themselves.

However, firms in the sector, such as Begbies Traynor, one of the major restructuring and recovery businesses, and RSM Tenon PLC, the seventh largest accountancy and insolvency firm in the UK, have endured their own difficulties, with the latter reemerging last month, relatively unscathed as part of Baker Tilly.

The visible face of the industry may be linked to business closures, but the efforts made by IPs in saving jobs and helping firms to continue trading go unnoticed, says Jonny Marston, of KPMG, in Newcastle, who was recently promoted to the role of restructuring partner.

He is also an insolvency practitioner and has worked on a number of the North-East’s recent high-profile cases, including Collectables, Peters Bakery, Thompson Builders Merchants and Premier Waste Management.

He leads a team which has further boosted its capability by recruiting senior manager James Lumb to the region.

“What people probably don’t know is that for every insolvency you see there are another two or three where we have been working behind the scenes with a business and we’ve managed to turn things around,” Mr Marston explains.

“We get called in all of the time to businesses that are exhibiting signs of distress. It could be that they’ve lost a major customer, got cashflow problems or they are under-performing.

“We get involved at different points in that cycle and depending on how distressed they are we may work towards a position when they go to the insolvency process or we find an alternative option.

“When people talk about ‘the administrators being called in’ it sounds like it’s the final nail in the coffin, whereas firms like ourselves are often working with the business to prevent that from happening.

“In rare circumstances you are going into the unknown. You get landed in the business and take control very quickly.

“It’s never an easy situation to deal with, especially when staff aren’t aware of what has been going on.

“You do get staff who see you as the villains of the piece but in general they understand that we are there trying to make the best of the situation and it’s not you that has caused things to go wrong.

“On the other hand you get the likes of Thompson Building Merchants which wasn’t in a great position when we arrived.

“It got to the point where we ended up having to make a lot of redundancies but crucially we secured a sale to Grafton and on the back of that they employed almost all of the staff again.

“Increasingly our priority is advising the region’s businesses on right-sizing themselves to become profitable, as opposed to simply surviving, with the economy finally starting to exit intensive care.”

It is a view shared by Steve Ross, chairman of R3 in the North-East and a partner in the restructuring department of the Sunderland office of RSM Tenon, who believes that the economic upturn has brought new pressures on businesses.

He says: “What we are finding now, as the economy starts to recover, is that we are being called in to help firms where there may have been over-trading or stagnation to help get them back up to speed.

“One of the dangers for businesses that have weathered difficult times is that they become risk averse and then get caught out when they need to start motoring again.

“Perhaps the most frustrating thing about our industry is when people delay calling us in for help and we are left with fewer options than if they’d flagged things up as soon as problems arose.

“We are about trying to find a positive angle – that could mean anything from re-financing to a pre-pack administration.”

“Any IP would tell you that their first thought is – How can we help?”