Let’s go to work

If the world’s leading restructuring and insolvency partners could pass on one simple piece of advice in these troubled times, it would be the Boy Scout motto: ‘Be prepared.’ Lord Baden-Powell was not, of course, thinking of credit crunches, distressed debt funds, and loan-to-own agreements when he coined the phrase, but the maxim is certainly apposite.

Opinion remains divided as to the precise long-term impact of the credit crunch, not to mention the rising cost of oil, but quarterly figures recently released by the government’s Insolvency Service suggest that the downturn is taking hold. In the first quarter of 2008, there were 858 companies in administration, a rise of 54% on the fourth quarter of 2007, and a rise of 23% from the same period last year. Most believe that the worst is yet to come as the poison seeps out of the money markets – with restructurings confined to high-profile cases such as Northern Rock, as well as niche structured investment vehicles (SIVs) such as Cheyne Finance and Golden Key – and into the wider economy.

Obviously, given the counter-cyclical nature of restructuring and insolvency practices, they will now be coming into their own. But the real question is how well-placed their firms are to squeeze out every bit of added value their restructuring practices might bring to the other departments. The potential is great, but for many firms that are only now preparing themselves for the very likely event of an economic slump, the chances are they are already off the pace.

‘If you only have your strategic plan ready to deal with the downturn when it’s about to hit you in the face, then the reality is you are too late,’ warns Linklaters’ global head of restructuring and insolvency, Tony Bugg. ‘If you look at some of the people who have moved amongst the accountants and some of the investment banks, they have moved during the last few years. As we approached 2007, everybody knew that there was too much liquidity around chasing too few deals, and overpaying, and that can’t go on forever.’

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