The State Of All The Nations
Hearing Jon Moulton, one of the UK’s most vocal private equity players, tell the INSOL Europe Conference in Vienna last month how poor the economic prospects were for the UK and Euroland was sweet music to the packed audience of IPs and restructuring professionals. But the swelling balloon of enthusiasm was punctured by one simple slide, which showed that formal insolvency filings are now running at levels lower than at any time in the past thirty years, measured as a percentage of active business entities.
If this was hard to understand, Mr Moulton’s next slide really stopped the show, revealing that the lowest of all insolvency rates in Europe in this deep recession have been in that unhappy club, the embattled sovereign states now cursed with the PIIGS acronym – Portugal, Ireland, Italy, Greece and Spain. It seems that “extend and pretend” techniques are being deployed on an epic scale exactly where they are least appropriate, unless of course you happen to be a politician or a financial institution concerned about your capital adequacy ratios.
All around the conference, delegates complained about work levels and, peering into an uncertain future and wondering where on earth the anticipated recessionary boom has gone. The answer is fairly straight forward: business failures peak after recessions when the survivors run out of cash in the recovery phase because working capital availability is squeezed in financial markets and risk aversion is the core philosophy among lenders.
What we seem to have this time round is not just as in the USA, a jobless recovery, but no recovery at all. Many developed economies are bumping along the bottom, displaying all the characteristics of financial flat-lining. With no meaningful growth, there are few pressures on working capital and with record low interest rates and ongoing government support schemes in many jurisdictions, there are fewer filings.
Apart from those of our professional community with experience of Japan’s lost decade, this is new territory for us all. The reality is that a zero growth and low investment environment will eventually destroy businesses and their management teams and then failures will start to increase. At least we must all hope so.
All in all, we continue to live in very interesting times, with rather more uncertainty than even the most hard-bitten BGN member or associate may find comfortable. On thing is for sure, the impact of the global recession is far from over. We await the fat lady with some anticipation, but it seems she may not sing for a while yet.
Julie is a law graduate who qualified with Price Waterhouse in 1994. Julie joined Smith & Williamson in 1997 and became a partner in 2001. With Mike Stevenson, Julie set up Middleton Partners offices in Salisbury and Southampton, both of which are now part of Begbies Traynor.
Julie is a member of the Insolvency Practitioners Association and the None Administrative Receivers Association and is a Fellow of The Association of Business Recovery Professionals. Julie deals with all aspects of Corporate Recovery and turnaround work and takes all form of personal insolvency appointments.