Time to end the blame game
It’s easy to pin all our troubles on the banks but, says John Kelly, we still need to take risks
End the blame game
All too often the owners of fallen businesses are viewed essentially as crooks by both their peers and the public.
But that is rarely the case.
In my experience of acting for ailing Midland companies this recession has so far thrown up very few what I would call ‘rogues’.
It is certainly true that troubled economic times do tend to prove an ideal environment for the growth of fraud.
The early 1990s recession saw the collapse of BCCI and the plundering of pension funds by Robert Maxwell.
One-time Wall Street high flyer Bernard Madoff, a former chairman of the Nasdaq stock market, is currently behind bars following what is thought to be the world’s biggest scam.
But that is a million miles away from the struggles of hard-pressed automotive, retail and property businesses in this region, fighting for survival.
For the most part those running the many businesses going insolvent and the one-man bands facing bankruptcy, have tried their best. It simply hasn’t been good enough.
Most, for whatever reason, got it wrong. They were caught out. And, after all, how many forecasters and economic sages predicted this storm?
Many companies which have gone insolvent could not cope with the rapidity of the sales slump.
We all know the woes of the car industry – sales down anywhere between 20 per cent and 50 per cent. Equally, other sectors saw orders just fall off a cliff.
Those firms which had geared up for higher volumes, still believing the good times were rolling, suffered a double whammy.
Why do we so abuse those who have ‘failed’?
It doesn’t happen in America. There is an expectation and acceptance in the States that business executives are likely to have a few failures behind them. It shows they are prepared to embrace risk – after all, risk is at the heart of capitalism. In the UK we are quick to assail risk takers when anything goes awry. But the very nature of risk means sometimes that will happen.
In the US, businessmen are expected to learn from their failures and become better for it. In the UK we tend to condemn them to outer darkness.
Yet there are all sorts of reason for ‘failure’.
They may have been young, inexperienced, picked the wrong location, were too optimistic about their business plan. They may have simply been unlucky.
They may have been well respected, with a strong track record, who had built up a business from scratch, a life’s work, their pension pot… all gone.
How traumatised are they?
But they may still find themselves marginalised, whispered about and condemned by those who ‘knew all along there was something dodgy about that lot’.
Is it any wonder that so many of our major industries are today in foreign hands?
We look down on manufacturing; and now the once golden boy bankers are all thieves and vagabonds.
True, they have apologised and admitted some of the responsibility for the present mess. There is risk taking and risk taking gone mad.
Too many allowed greed to blind them. Money sellers; not bankers at all. A stock market that became a casino. There is no getting away from the fact it all went spectacularly amiss.
But we will still need the country’s best business brains to help us rebuild.
A thriving financial services sector will remain vital to this country going forward. Today it is claimed that our beleaguered banks refuse to lend. But we find that few firms are going down because they lack access to funds and in many instances those denied money by the banks are rightly refused.
There are apartment schemes out there which are not worth completing because asset values have fallen so far. It would cost more to finish them than the homes are now worth.
So should the banks be lending good money after bad? Bullied into more irresponsible lending?
It seems they are pilloried if they don’t and pilloried if they do.
And this culture of blame and ridicule affects my profession too.
I am talking about pre-packs – where a buyer is lined up before an insolvency technically occurs and without creditor agreement.
The critics say by not advertising the bust business for sale, thereby testing the market, the ability to maximise a return for creditors is lost.
“Four in five UK suppliers may have to write off unpaid debt due to ineffectual new rules for pre-pack insolvencies” screamed a recent report.
And there are attempts to link them to phoenix companies – where directors put a firm down, dumping the debt in the process, and start up again almost immediately, often trading under a near identical name.
But do I go to the bank – which has already lost out once – and ask, say, for £200,000 to keep a business running for a couple of months while I advertise it for sale?
In a recession as deep as this there are very few buyers out there and the prices they will pay are low.
Often the only people interested are the directors – after all, they know the business and hopefully understand where they went wrong.
So it often makes sense to sell it back to them.
And of course timing is everything – goodwill and customers can vanish virtually overnight in these straitened times. Delay and there is nothing left to sell.
That is why we in the corporate recovery profession assert that pre-packs are the most effective way of salvaging a business while recouping at least something for creditors.
And surely we are doing a vital service by preserving jobs.
Goodness knows, unemployment is high enough and sure to go higher.
My advice to struggling firms is that financial controls are critical. Make sure you have the most up-to-date information about your business.
Batten down the hatches, raise your client service levels and do whatever you can to bring in new work however difficult that may be.
During the mergers and acquisitions frenzy companies which kept cash in the bank were regarded as Neanderthal.
Today, cash is king.
I don’t deny that it is right to examine all aspects of our financial system – risk, the trading of financial instruments, hedge funds, short selling, regulation… the lot.
I would welcome changes for the better because we cannot afford this to happen again. However, please let’s not throw out the baby with the bathwater.
n John Kelly is a corporate recovery partner at the Birmingham office of Begbies Traynor
