THE recessions of the 1980s and 1990s were characterised by the high number of businesses which went into liquidation. We have seen some high profile casualties over the past few years but the fear of many of a flood of insolvencies has not materialised, particularly within the small- and medium- sized business sector.
The number of business failures now is at the level they were before the economic storm of 2008 hit. That contrasts sharply with the insolvency ‘lag’ we saw in previous recessions where the number of businesses being liquidated was higher in the period after recession than it was during.
This has surprised many economists and business experts, not least many insolvency practitioners, but I believe it tells a story of increased confidence in the ability of company owners and their backers to turn around a firm that is failing and give it a new lease of life. The days of cutting and running are over.
Many insolvency experts are simply not keeping up with this trend. Too often there is apathy among practitioners, afraid to accept that change is happening and that the way they do business needs to change. For a sector that is all about dealing with change and companies that run into problems, they are failing to evolve to keep up with the reality of the post-recession business climate.
Here in Yorkshire, the second biggest financial centre outside of London, my experience shows that we are actually leading the way in this new approach to dealing with struggling companies. I work in both Leeds and London and whereas the old practices of a firm getting into trouble and being put into liquidation continue to be common among the traditional insolvency practitioners, here in Yorkshire we are seeing greater willingness to invest time, money and effort in making good the bad.
You will frequently find that it is outside the capital that changes happen more quickly. We are seeing this with insolvency as practitioners evolve from being the people who go in to close a company down and liquidate its assets to those who go in, work with the owners and find solutions to turnaround the business.
This is happening in Yorkshire faster than elsewhere – there appears to me to be more private equity available and businesses are more willing to ask more quickly for the help and support they need to recover rather than let the situation get past the point of repair. Once again, Yorkshire is leading the way in finding the best solutions that are now catching on elsewhere around the country.
Whether it’s the continued popularity of Dragons’ Den, or business angels seeking opportunities in a challenging economic climate, we are seeing across Yorkshire – as around the country – a huge increase in the number of business angels willing to not only put up their own time and effort but also money to invest in a business’s future and turn it around.
As you see from Peter Jones and Deborah Meaden on our TV screens, the questions business owners receive are searching but the benefits can be huge. The ‘dragons’ also want quick returns – that means a struggling business can return to growth quickly and, having turned their fortunes around, owners are once again left to their own devices to develop their company as they wish. I believe this form of recovery – hands-on, intense but ultimately successful, is something we will see much more of in the years ahead.
If all of us who work with businesses in trouble can support these efforts, I have no doubt it will have a huge impact on the whole economy. After all, many insolvencies are caused by a domino effect of one company going out of business plunging countless others into financial trouble.
The future is, of course, unpredictable. At some point interest rates will increase and that will have a significant impact on many new businesses that have recently set up and only existed in an era of record low rates with borrowing often hard to come by but also relatively cheap. However, while some predict we will see a huge number go out of business, I do not believe this will be the case.
Inevitably, some businesses will be unable to stand the increased pressure and will fail. But I think these will be the exception rather than the rule and the increased willingness of business owners to accept help, and the increased amount of turnaround and recovery help available, will see more survive and go on to thrive in the future.
This can only be good for the future of Yorkshire’s economy and of UK plc.
• Rashmi Dubé is founder of Leeds-based Legatus Law.