A brief summary of professional opinion is that things are very quiet at present in the insolvency sector, with a small uptick in activity.
Most think this is because of the effects of the government furlough scheme ending and they have not yet filtered through, with some of the money from government business recovery and bounce back loans is still in circulation.
One of the things that may trigger the collapse of smaller firms is that government loan scheme. Some principals have signed up to funds which have not then been put to appropriate use within their business. Already some are being pursued.
The initial tranche of second tier lenders, some of whom did not have government protection themselves, are exposed and this will cause some stress in the sector. Comparing the situation now against the last recession, it is clear that there is more capital in circulation and a willingness to lend to the right businesses with a story. Those in distress continue to have hope that they will receive a lifeline, the cost however in terms of interest, and the equity giveaway, will be significant.
Whilst a lot of funds have capital and are keen to get it out of the door, the smaller ones are awash with opportunities and cannot respond quickly enough to requests for investment. It is expected that the process of applying for and processing winding up orders will be elongated due to insolvency practitioners’ bandwidth, and also the courts, their processes and backlogs. Some are saying that it could take longer than 12 months to deal with the legal process alone, which would enable some firms to buy more time to find a solution.
As unfortunate as it is, there are opportunities in some of this for those with cash, backing and time to be able to engage and make purchases of complete or partial businesses, their plant, or IP.
Business turnaround is gathering pace and the sector is already seeing an increase in demand. Unfortunately, as a business we are speaking to clients who first sought us out 12 months ago due to stresses in their firm, who chose not to deal with their issues at that time, and who 12 months on are backed into a corner with only one way out.
Written by Jonathan Cook
