London,
02
July
2018
|
13:17
Europe/Amsterdam

A view from the Nineteenth Hole

Last month Vernon Dennis and Tim Bignell attended the 28th R3 Annual Conference. In this article Vernon reflects on some of the key themes identified, both in and outside of the conference hall.

The end of May marked the migratory return of the insolvency profession to Vilamoura, the third time the town has hosted the R3 Annual Conference. A new hotel, masterclass sessions and a revamped informal Gala Dinner rang the changes, although try as one might the allure of the marina and the Nineteenth Hole bar was too strong to prevent a slight feeling of déjà vu.

Shaping the Agenda

With the conference entitled "Shaping the Agenda" reflecting on the event I have sought to identify from the various presentations, where the profession is leading proactively in the rescue, recovery and renewal of failing businesses, in contrast to where the profession is reactive in finding opportunities from evolving conditions.

Leadership

The Conference began with an exploration of leadership in the key note address by Retired Major General James Cowan. A review of Britain's involvement in three major conflicts within this century highlighted that despite the exceptional skill and bravery of the armed forces, without accompanying political will, providing support and resources, a failure to achieve set objectives is all but inevitable.

An uncertain political will and the machinations of politicians were also identified in two presentations concerning Brexit; with a failure to identify a clear path following the Brexit referendum causing business uncertainty and a lack of opportunities for profession to grapple with restructuring UK Plc.

Brexit – continuing to shape the agenda

Various speakers speculated on the impact of Brexit in its wider sense and in particular the consequences for the insolvency profession. The Withdrawal Bill removes the mechanism for reciprocal recognition and leaves in its place a vacuum. Speakers speculated on the use of UNCITRAL, domestic legislation, or bi-lateral treaties, all of which might fill that vacuum and enable UK insolvency office holders to better 'shape the agenda' in any cross-border insolvency.

Indeed a discussion on the use of UK Schemes of Arrangements identified how the UK profession has to date shaped much the development of cross border insolvency and how the European Union is already responding and suggesting rival processes. However, despite the considerable thought that has gone into predicting post Brexit solutions, one was left with the distinct impression that we simply need to wait for the politicians to reach a conclusion of whatever nature (hard/soft/Brexit in name only) before the insolvency profession can assess the landscape and devise pragmatic solutions to cross border cases. Until the Brexit conundrum is resolved by politicians it is difficult to see how the profession will be shaping the agenda.

The way we work – what we work on

There were also presentations focused on the developing way in which we work, with GDPR changing some customs and practices and artificial intelligence being heralded as the 4th industrial revolution. Other presentations looked at the changing nature of work undertaken with fraud and cybercrime highlighted. In regard to the latter, the tool kit available to the insolvency profession remains a useful counter-weight to financial crime in its various forms, but again one is left to conclude that joined up thinking at an inter-Government level is required to tackle what is increasingly a global threat to businesses and the financial sector.

CVAs – the elephant in the room

Failures in the charity sector and the collapse of the corporate monolith that was Carillion also identified a theme that the profession will act reactively and find solutions within the limitations of an existing insolvency framework. Specialisms with the industry continue to grow, but one remains mindful that the same basic activities and techniques are adopted, whatever the situation and size of the insolvency.

Much of the talk outside of the Hall focused on the current plight of retail, restaurants and the use of CVA's. Perhaps by accident of timing and the need to set a programme well in advance, only one presentation tackled directly the 'hot topic' of CVAs and that was report on the research conducted by Professor Peter Walton and Chris Umfreville. The research looked at all 552 CVA's commenced in 2013 to review outcomes, identify key characteristics and inform policy recommendations. While nearly two third of the CVA's were terminated, it was found that this was not necessarily indicative of failure, with some return (better than immediate liquidation) being achieved in the majority of cases. Failure was most commonly attributed to overly optimistic financial forecasts and an underestimate of the working capital demands on the business of the CVA. Recommendations included limiting the duration of a CVA to 3 years, the introduction of a new form pre-insolvency moratorium, more informative documentation to be filed at Companies House and standardisation of terms and conditions.

This fascinating research was of course of CVA's in 2013 and did not include any review of the current wave of 'retail CVA's' i.e. those specifically designed to deal with a reduction in a company's leasehold portfolios. If ever there was a case of the profession setting the agenda this is it, with the development of the CVA to deal with a very specific problem and resulting in the rescue of a company that would otherwise fail. This agenda setting however is leading to criticism and the British Property Federation urging the Government to review and reform the legislation to provide for greater transparency and the ending of unfair discrimination, CVA's working to the detriment of one class of creditor (i.e. landlords).

The Final Putt

Rather than shaping the agenda I think one is left with the feeling that the profession is still waiting for current political and economic concerns to be resolved, and it is only then that the profession can advance business restructuring as a means of leading economic revival. This feeling of 'wait and see' is however, one which has its roots way back in the financial crisis of 2007/08. It was politicians who shaped the agenda by providing liquidity to badly shaken financial markets by means of quantative easing and thereafter by maintaining historically low interest rates. This has allowed 'bad' businesses to continue, with gradual decline (and then corporate death) resulting, as opposed to seeing a more 'natural' rise in business failure and then renewal. Indeed the slow and 'inevitable' death of several retailers and restaurant groups has been identified as an inevitable consequence of the 'zombie company' phenomena. It is ever the case that rescue and renewal requires confidence and that comes from a healthy economic climate and political certainty, both of which are currently lacking.

For further information, please contact Vernon Dennis, Head of Business Recovery and Reconstruction.