Turbulent times

January 2013 | SPECIAL REPORT: GLOBAL RESTRUCTURING & INSOLVENCY

Financier Worldwide Magazine

We live in turbulent times. In economic terms, the years 2008-11 have been paralleled only by 1929. The continued global crisis puts all our talents to the test. What we see is unique in history, and neither the IMF nor the World Bank, nor any national government, has the ultimate answer. We all work with scenarios, and even these are thrown away in an instant. The economy keeps changing its shape and challenges. All of us are pushed forward and backward, and normal rules seem not to apply. In times like these, simply getting by may seem difficult enough. Leading others might seem daunting.

Leadership is about serving and putting means to the mission. Showing leadership in the current crisis means we need to trust people and people need to trust rules, treaties and governments. Scepticism will create standstill and turmoil. Courage to decide what to do – even if one does not fully know what to do – brings solutions closer. Yet decisions must be informed – the blind will usually only lead the blind into the pit, or at the very least into more trouble.

Practice is where economic peace is made between rights and obligations, between total collapse and success. Comparing legal systems is a starting point; comparing the lapses and finding the general universal solutions and principles are the genuine challenges. Reports and publications succeed in creating a stepping stone for just that, as they quickly find their way into practical life, courtrooms, cabinet rooms and academia. Yet practice is also about what we do not see – time, trust, passion and energy. The wealth of information collected and presented in market reports and publications will hopefully allow readers to reach creative, informed decisions in their various roles in the business insolvency context.

In these turbulent times the restructuring industry will be put to the test, and must demonstrate that it can all rise to the occasion and the responsibilities that come with it.

The practical experiences of restructuring and insolvency professionals across Europe have, as ever, varied significantly in recent times. Some of the Southern European economies have been under extreme stress and there have inevitably been corporate failures. In parts of Northern Europe, by contrast, the financial crisis has driven the banking sector to focus hugely on strengthening its balance sheets. This has given rise to a proliferation of so-called ‘zombie’ companies, which are no longer cash generative or profitable, but survive by reason of the forbearance extended by financial creditors. This phenomenon is becoming well recognised in the UK, among other jurisdictions, with its negative impact on the long term economy. Resources are unproductive in the zombies, whereas if recycled into fresh entrepreneurial ownership with the equity capital to invest in and support them, they would be contributors to growth and a more rapid return to prosperity.

A perennial issue is the challenge of dealing sufficiently early with corporate stress or distress. Different jurisdictions approach the legal sanctions for failing to respond quickly enough in different ways, but rarely is there enough commercial motivation in a time of deep financial stress for business stakeholders to spend more money on pursuing solutions that they perceive as unpalatable. When combined with an apparent political desire to concentrate more on the short term capital strength of financial institutions and less on the longer term health of wider business drivers in the economy, restructuring and insolvency professionals continue to face more challenges than might reasonably be expected in encouraging stressed and distressed businesses to seek their assistance when they may still be able to add significant value.

However, those who practise in the field of restructuring and insolvency are highly resourceful and will undoubtedly adapt to the unique economic and financial circumstances currently being experienced. Combining such an approach with the passion we tend to bring to bear will lead to more vibrant businesses and economies in the long run.

Marc Udink is secretary general of INSOL Europe and Chris Laughton is a restructuring and insolvency partner at Mercer & Hole. Mr Udink can be contacted on +31 70 311 0738 or by email: mcudink@ujlaw.nl. Mr Laughton can be contacted on +44 (0)207 236 2601 or by email: chrislaughton@mercerhole.co.uk.

Marc Udink

INSOL Europe

Chris Laughton

Mercer & Hole