Creditors pay more for company rescues

Insolvency practitioners are making more money as jittery creditors pay out
more cash in an effort to keep companies afloat or recover their investment in
failed companies.

IPs are benefiting because high demand for vital business advice has led to
discount rates agreed with clients being lower than normal.

Leading IPs made clear that they were not holding companies to ransom,
creditors were just willing to pay more in order to get the best outcomes as
market conditions worsened.

‘Sometimes we have to discount our rates,’ said Lee Manning, business
restructuring partner at Deloitte, ‘but we are recovering a higher proportion of
our headline rates now.

‘In good economic conditions, IPs were a bit of a dying breed, but it’s all
about insolvency at the moment. People like to have the key skills that we can
bring.’

Nick O’Reilly, president of business recovery trade association R3, agreed,
reporting IPs were finding themselves in higher demand for business
restructuring, administrations and company break-ups.

In the past few months, some firms have been boosting their insolvency
offering as more companies find themselves in financial straits and corporate
finance divisions continue to struggle in the downturn.

Manning said that
Deloitte
was ‘well placed’ to cope with the extra demand for IPs if, as predicted, more
businesses fall victim to the tough conditions.

As the supply of prospective buyers dries up as banks rein in their lending,
Manning also predicted that there would be a spike in pre-package
administrations, where a business secures a buyer before it enters insolvency.

‘It’s almost impossible to go to a lender for finance,’ said Manning. ‘Banks
are running scared. There will be a drive for pre-packs.’