Member Article

Crystal ball 2015

So as the final strains of Wizzard’s Christmas jollity fade into the background and Tommy Turkey has done sterling service over and above and beyond the call of duty, through roast lunch, cold cuts, casserole, curry, toasted sandwiches, soup and finally the stockpot, we find ourselves back at work with a brand new year stretching out before us, says John Harlow of Harlow Insolvency.

I find myself back at the “coal face”, in an office which feels more like the renowned Ice-Hotel, the fan heater fighting an uneven battle against the arctic blast which manages to find its way through every gap in the window.

As I crack the ice forming on the top of my tumbler of water and drop-in another Alka Seltza to alleviate the bilious remains of the New Years Eve excesses, I ponder what the year ahead may bring, not only to me, but also to the insolvency profession in general.

The New Year traditionally seems to offer a fresh canvass, a new start if you like, from which optimism for the future naturally flows. Never mind the travails of the previous twelve months; this New Year will be better…..won’t it?

Well who knows? I can’t help thinking back to the last two or three (or more) New Year’s days when that initial optimism turned out not as anticipated or hoped for. The insolvency profession has been quiet for a long time now and there don’t appear to be many signs that that is going to change in the near future. Of course people will say that the lack of insolvencies is a good thing and an indication that things are getting better in the overall economy.

Much was written last year about the prevalence of the so called “Zombie” businesses, which survive through the lenience of creditors and low interest rates and I think that there is no doubt that there are still plenty out there who are still clinging-on by their finger nails, but not making much, if any, contribution to growth. I’ve written before about my belief that the dead wood needs cutting-out in order to let stronger businesses thrive and grow. It will soon be spring, so it will be interesting to see if any such pruning occurs.

In the lead-up to Christmas we did see a flurry of activity and there have been increasing indications that creditors in general and HMRC in particular are showing less patience with debtors. If this upturn is replicated into the New Year, then we may see a new trend and an upturn in formal insolvencies.

Of course all this is against the backdrop of a forthcoming election. We have seen before how political pressure can alter the situation and the present government won’t want to enter the hustings in an atmosphere of increasing insolvencies and the accompanying job losses. Will this affect the current more aggressive stance of HMRC or will we see a return to leniency and time to pay agreements being offered, as in the lead-up to the last election? We shall have to wait and see…

So what of the insolvency profession itself? The last year wasn’t easy, yes there were some headline jobs culminating in the demise of City Link and the loss of some 2,000 jobs, but overall firms specialising in insolvency and corporate recovery have felt the squeeze and we have seen the loss of some jobs and office closures within the profession. Whilst we are all ruminating over these matters, the profession itself is set to undergo some changes. R3, the trade body have been viewing certain of these proposed changes with concern, as indeed have we practitioners. The Jackson Reforms seek to remove the availability of Conditional Fee Agreements backed by After the Event Insurance from the IP’s toolbox as of April this year. This effectively disarms the practitioner and if carried through will undoubtedly deter practitioners from bringing actions against directors or other malefactors. R3 have expressed the opinion that this could cost creditors £160 million per year.

A new set of insolvency Rules is due to be introduced, although it is unclear if they will come into force this year. We will all have to learn a new set of numbers and those running courses will be rubbing their hands in glee, whilst the rest of us will be dreading the amount of reading, learning and apprisal this will require. It will also necessitate the complete overhaul of all the standard notices and precedents, no small task in itself. Still, we are told that it will all be clear, concise and user friendly….so that’s ok then! In fairness, the old rules have been in force since 1987 and have been subject to so much amendment over the years as to make them unwieldy and difficult to use. So out with the old and in with the new (where have I heard that recently?).

Other changes proposed include the abolition of physical creditors meetings. Although this may make life easier for practitioners and streamline the process to some extent, I do feel that it devalues the formal insolvency process and to some extent disenfranchises the creditors. It has always been the one time that creditors can engage with directors across a table and ask directly what happened and where did the money go? Whilst it is true that attendances have diminished considerably over the years, it is still something which directors are anxious about and serves to underline the serious nature of winding-up procedure.

Pre-pack insolvency has been something of a political hot chestnut for a number of years now and the Graham Report commissioned by the government last year has made certain recommendations. One of these was to set up a pool of non-practitioner business people to review pre-pack proposals prior to completion of any business sale to connected parties. Quite how this will work is something else on which we will have to watch that space.

All in all then, 2015 looks set to be an interesting year for the insolvency profession. I think that we are all wondering whether the usual level of work will ever return. We all think that it should, but the vexed question for all of us is not if it will return, but when? I would finally like to wish everyone a Happy and Prosperous New Year (and yes, I do really mean that!).

This was posted in Bdaily's Members' News section by Laura Jones .