Pre-Packed for Success?
Friday, March 13, 2009 18:49
As the recession continues to bite, many fundamentally sound companies run the risk of insolvency. The number of company failures has been soaring through the year of 2008. It is expected that the number of insolvencies will increase by 55% in 2009 capared with 2008.
KPMG research found that there was a 79% increase in debt restructurings and a 64% increase in cash flow warnings among UK companies in the fourth quarter of 2008, compared with the same quarter in 2007. The impact of the credit crunch on the real economy along with a severe loss of confidence among consumers has created a noticeable increase in opportunities for insolvency practitioners.
But, directors at companies facing insolvency must consider all the options, even the much maligned pre-pack route, according to a roundtable of corporate restructuring experts. The average amount of jobs saved via pre-pack deals reach 98%.
However, there is a danger in this environment that potentially solvent business restructurings have given way to a focus on insolvencies. Due to the significant lack of credit available in current market conditions, there is little classic turnaround business. There is a huge risk that after a long time when had companies have been able to survive, failing bad companies are now driving out good businesses.
But insolvency is not something to be scared of. it is bound to hurt some stakeholders but ultimately creates a stronger corporate sector. So, insolvency practitioners need to be sure that they can stand up to close scutiny of their actions in relation to administrations. This could be a fruitful area of attack for disgruntled creditors against insolvency practitioners as a resulf of companies failing during the recession.
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