Creditors are losing their appetite for formal insolvencies

The decline in the numbers of formal insolvencies suggests that creditors are realising that they don’t actually solve the problem.

Creditors’ reduced appetite for pulling down companies is directly related to whether or not they are going to get the money they are owed. In many cases insolvent companies have been shown to have very few unencumbered assets available, meaning that there is no money left to pay creditors.

This is a positive for the insolvent company in that it means there is likely to be more scope for restructuring.

Logic would suggest that if creditors are willing to be more patient and to accept a consensual restructuring proposal, they are likely to get a better outcome than via formal insolvency.

Consensual restructuring is a pragmatic approach and relies on reaching agreement to ensure future supply as well as reassuring creditors, who are often key suppliers.

Reaching agreement for new terms and implementing the plan can be difficult when trust has broken down which is why independent third party executives such as company doctors can be valuable.

We would welcome your comments on the viability of consensual restructuring and the reasons for the decline in insolvencies.

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