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It is almost a cliché in business circles that the numbers of formal insolvencies start to increase when
an economy is coming out of recession.
However, since the 2008 financial
crash, the numbers of formal
insolvencies have been declining.
Initially, perhaps, this was because
many companies were struggling on as
effectively zombie companies, able to
afford only interest payments on their
debts while creditors held off pressing
for payment, awaiting signs of recovery
in hopes of recovering more of their
money when trading conditions
eased, as in previous recessions.
Another contributing factor to the low
number of formal insolvencies has
been the considerable forbearance
by banks and the UK’s HM Revenue
and Customs (HMRC). The latter has
agreed to approximately 400,000
time-to-pay arrangements since
2008; historically, HMRC would have
pursued recovery by seizure of assets
or winding up the businesses.
Although there has been some
evidence of recovery and economic
growth in the last two or three years,
UK Insolvency Service figures continue
to record reductions. Indeed, formal
insolvencies have declined every
year since a high of 24,011 in 2009
to 14,629 in 2015. Since comparable
records began, these figures compare
with a peak of 58,197 in 1992 following
the lowest point at 10,914 in 1988.
Does this continuing decline mean that
the UK is still in a recession? Or is there
a change in the UK, and perhaps also
in the rest of Europe, in the approach to
dealing with insolvent businesses and
the way they are being restructured?
There is growing evidence to
indicate that a shift is occurring
from what could be called formal
insolvent restructuring, using
courts and legal insolvency
procedures, to out-of-court,
informal consensual restructuring.
Two case studies illustrate how
consensual restructuring has
been used successfully.
Company A is a digital marketing
company providing project-related
online marketing services to the
UK-based divisions of international
companies. The company specializes
in data mining and data analysis
to devise marketing programs and
promotional initiatives for clients. It
had a couple of global sponsors who
referred it to the sponsors’ own clients.
Company A had two main problems.
First, it got into severe financial