Recovery positions

Should we expect an increasing number of companies to fail in the
year ahead?

Tony Supperstone: Generally speaking, the economy is bumping
along. We’re certainly not going to see the recession of the early 1990s again.
Personal insolvency is rising and will continue to rise, the problem is that
there is so much credit available. On the corporate side I don’t think the
numbers are going to increase particularly as there will be certain sectors that
have problems and certain regions that have problems, but I don’t see any
spectacular rises forthcoming.

Mark Palios: The biggest issue is the extent of the
liquidity that’s around. There is a great feeling that this is a bubble waiting
to burst.

Which sectors are the worst affected?

Tony Supperstone: In retail, there have been a lot of
high-profile failures. With the increase in the number of administrations, which
are seen as a rescue tool, retail is always going to be a good opportunity for
an administration. This is because you can restructure a retail group leaving
behind the unprofitable shops and coming out with a nice clean operation. We get
a lot of manufacturing businesses in trouble and with the impact of MG Rover
that has been highlighted. As a country we don’t manufacture as much as we used
to so retail is the biggest side.

Can debts to HMRC be negotiated down or is the taxman immoveable on
tax liabilities owed?

Tony Supperstone: R3 members spend a lot of their time
advising companies on debts due to HMRC and it is possible to negotiate. One has
to be totally upfront, totally honest. They will listen to sensible proposals,
they don’t want to shut down businesses for the sake of it, they want to get
their money back like everyone else and they are becoming more commercial these
days.

Are more companies turning to turnaround specialists before a problem
becomes fatal?

Mark Palios: It is not so much coming from the company
itself. You normally find an agent for change being a funder, lender or an
adviser. I think within that community it is more accepted. There is a culture
now which accepts the fact that an intervention into the management can happen.
There were some statistics done in the late 1980s that 25% of companies in any
point of their lives require a turnaround.

Why can’t the company executives manage the process instead of having
to call in specialist?

Tony Supperstone: Because they are too close to it. They are
the ones who have the problem, they can’t see the wood for the trees, they need
someone whose sole business is tuning around companies.

Are pension problems persuading more companies to call on
specialist turnaround help?

Tony Supperstone: We have seen a few instances recently.
Companies that were previously not balance sheet insolvent, if you take into
account the deficit of a pension scheme, are now insolvent. And if they are not
able to make up that deficit then there is a danger that they will go into some
sort of administration or insolvency process. It’s not a phenomenon we have seen
before.

Are parts of the NHS in need of turnaround advice?

Mark Palios: There is a lot of work to be done – obviously
because it is a major industry employing a lot of people with a lot of GDP being
spent in this area. There is an impression at the moment that a lot of the work
that the guys in the NHS are doing is trying to make it hit budget. What the
government has actually done is employ accountants to make people hit budget
which you can do. You reduce costs, but you also probably reduce your service
levels. The real win for the government is in getting to a position whereby you
improve performance. You can cut costs and you see redundancies and you can hit
budget but that is not the issue, the issue is improving performance.

Do insolvency specialists charge too much?

Tony Supperstone: Generally, I don’t think so. Insolvency
practitioners fees are agreed by creditors. There is vast transparency now, we
give details of all our time spent to the creditors. R3 members are specialist
in their business and it is not something every Tom, Dick and Harry can do. You
have to have a licence to act as an insolvency practitioner.

This week’s experts

Tony Supperstone takes over as President of R3, the
Association of Business Recovery Professionals, later this month. He is a former
business recovery partner at BDO Stoy Hayward in Birmingham and now a
consultant.

Former Football Association chief executive Mark Palios is
one of the best known turnaround specialists around. Now a senior managing
director with FTI Palladium Partners, he has more than 20 years of experience in
rebuilding value for stakeholders of troubled businesses, acting as a principal
and as a business adviser.

Chaired by Damian Wild, group editor in chief of
Accountancy Age and Financial Director