While Tony Blair and his motley crew blather on about rebranding thist the financial crisis, writes John Willcock. country into Cool Britannia, UK accountants can be proud of the fact that in one area we already lead the world: sorting out companies that have gone belly-up, or rescuing ones that are going that way.
In the upside-down universe of the insolvency practitioner, what is good for the rest of us means lean times for the liquidator. Which explains why plane-loads of UK company rescue experts have been flying off to the Far East to sort out the current financial crisis, leaving behind a UK economy with the lowest level of receiverships since the Lawson boom of the 1980s.
Colin Bird, a senior insolvency partner with Price Waterhouse, describes the efforts of the International Monetary Fund and the World Bank to solve the Asian crisis as a multitrillion-dollar poker game that neither side can afford to lose.
UK insolvency practitioners have been closely involved in advising the parties on how to play their cards right. Not that there is any glee shown by the various accountants and solicitors who have gone to offer their help to Thailand, Singapore, Malaysia, Korea and the rest. And, as the accountancy firms are keen to insist, there is still plenty of company restructuring to do back home in Blighty. But the sheer scale of the problems in Asia is enough to make any liquidator salivate and any company-rescue expert flourish his slide rule. For instance, Japan’s banks have bad debts of more than $577bn (#356bn). That compares with a peak for the UK high-street banks of #6bn in the last recession six years ago.
Then there is the Japanese insurance sector, which has premiums of $510bn a year – as large as the US. And the Japanese life industry’s assets total $2,000bn. Shareholders’ equity in life companies now stands at 1.3% of assets. As Bird says: ‘This leaves them with a bit of a capitalisation problem.’ No wonder, Bird concludes, that ‘if Japan’s insurance sector goes down, we all go down’. In other words, it can’t be allowed to go down.
Turning to Thailand, where many of the current problems started last year when a property downturn forced the country to devalue its currency, 58 companies that lent to the property sector have been suspended. By the third quarter of 1997, a survey by Paribas Asia Equity estimated that of 197 non-financial companies listed on the Thai Stock Exchange, only 19 were clearly not insolvent. Another 140 were bankrupt, and 38 were hovering between being bust and insolvent.
There is a certain macabre synchronicity between good times here and bad times over there. Despite recent stock market revivals in Asia, which suggest the worst may be over, wise heads in the Bank of England are still ready for a long haul back to health in the region, with the possibility of another meltdown if Indonesia, for example, goes off the rails.
The list of UK company rescue experts who have headed out East is distinguished: it includes Stephen Adamson and Nigel Hamilton, the heavyweights of Ernst & Young who rescued Canary Wharf. Both are heavily involved in rescue work in Thailand. Then there is Bird and his international team who have made a specialism of big, complicated insolvencies since taking the lead in unwinding Robert Maxwell’s trans-Atlantic business empire.
Stephen Taylor is the Coopers & Lybrand partner who sits in London and decides which partners are sent to which part of the globe. As such, he has been closely watching events in Asia. Taylor is cautious about seeing Asia as a place for insolvency men to make money: ‘We haven’t sent out aircraft carriers full of insolvency practitioners and plonked them in the South China Sea – we send people out as and when our clients want them,’ he says. Having said that, Coopers already has company rescue people in Hong Kong, Kuala Lumpur and Singapore.
Recently, Coopers was appointed liquidator to CA Pacific, an investment bank in Hong Kong with many similarities to that other recent casualty, Peregine, also in liquidation. Jan Blaauw, a Coopers partner, is lead liquidator of CA Pacific, and faces the problem of sorting out more than 11,000 client accounts, including business accounts as well as individual ones. The accounts are currently the subject of a legal dispute, and the liquidation promises to be a long and complicated one. Like PW’s Bird, Taylor identifies the willingness by governments to implement the IMF reforms as a key to the problem.
In Thailand, the government seems keen to implement IMF resolutions.
Indonesia is slowly picking up the cudgels. Taylor did recently mobilise 87 ex-patriate insolvency people to fly out to Thailand to deal with a wobbling financial institution, but in the event they were not needed.
These ex-patriates were sourced from the UK, Canada, Australia, Hong Kong and Ireland.
Other firms have also sourced their people from mainly English-speaking countries, where insolvency laws are broadly similar. And there is the ubiquitous Neil Cooper, now with Buchler Phillips, who has been involved both with Maxwell and Asil Nadir, of Polly Peck fame. Cooper is an expert on cross-border insolvencies and about to take over the helm of INSOL, a global body dedicated to improving multinational company rescue techniques.
Then there are the lawyers, as any accountant will tell you. As Taylor says: ‘There is a problem of hotel space.’ Cameron Markby Hewitt, Lovell White Durrant, Denton Hall and Allen & Overy are all out there.
Indeed, one distinguished insolvency lawyer well known to his accountancy colleagues is Gordon Stewart, a partner with Allen & Overy and a recent president of the accountant-dominated Society of Practitioners of Insolvency (SPI). Stewart visited the region on a pre-Christmas lecture tour to explain which rescue procedures were on offer.
With all these pin-striped Brits disembarking at the airports, every insolvency man has stressed the need to act with sensitivity. ‘It’s vital to work through local firms. These are proud people, after all,’ says Bird.
Most UK practitioners advise local businesses to avoid selling assets at the bottom of the market, however desperate the situation may seem.
This hasn’t stopped bargain hunters from scouring the region. US investment banks, such as Goldman Sachs and Bankers Trust, have been picking up troubled bank loans in the area for around ten cents to the dollar. Bearing in mind the fundamental manufacturing strengths of the region, this can’t be far off a one-way bet.
There are particular problems in trying to sort out the financial crisis, says Bird. Just one of the problems is that, in Thailand for example, a recent law change means it is difficult for a bank to foreclose on a company to which it has lent money. The only way round this is to work via a local firm, a key point mentioned by all.
Bird stresses it is misleading to talk about Asia or the Far East as if it is a single entity, with a single set of problems. ‘Thailand and Korea are as different as England and France,’ he says. ‘What we can do for them is explain which solutions have been used in similar situations in other parts of the world.
We can’t just throw solutions at them.’
Bird recalls a recent instance when he was sitting in a central bank in Djakarta in Indonesia, listening to some local financiers talking about what was happening in Thailand. ‘Their attitude was very much “What has this got to do with us?”,’ he says.
A generic solution is needed, he thinks, with standby credits provided by the IMF as only a beginning. ‘You need to persuade the world you can settle (your debts),’ he says.
But then a whole series of problems must be tackled, including the reform of macro-economic strategy, dealing with the minutiae of restructuring the banking system and reforming bankruptcy law. The latter is often lacking, especially away from sophisticated financial centres such as Japan, Hong Kong and Singapore, simply because many of the countries involved have experienced only uninterrupted growth for the last 20 to 30 years.
Thailand, for instance, badly needs a new asset law because its new foreclosure rules are so difficult for banks to use. The same goes for Indonesia, while South Korean insolvency law is more well-developed. If, and it is still if, the Asian financial crisis does blow over and the various countries manage to reform their economies over the next three to five years, then UK insolvency practitioners will be able to take a significant share of the credit.
This isn’t just happening in Asia. Taylor of Coopers has recently despatched UK practitioners to Russia, the Ukraine, central Europe, and has a couple of liquidations in Romania. Mind you, it is doubtful that Tony Blair will be keen to promote the slogan, ‘The UK: liquidator to the world’.
John Willcock is City Diary editor of the Independent.
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