You can’t make a silk purse out of a sow’s ear.
In an ideal world all decisions made by insolvency practitioners would be made with the utmost of objectivity, relying on a complete investigation in which all relevant facts were discovered, and only after mature and unhurried consideration of the alternatives, which might be open to them.
But the reality is that neither insolvency practitioners, nor those influenced by their decisions live in an ideal world. It follows therefore that many, perhaps most, of insolvency practitioner’s decisions are unavoidably made in less than ideal circumstances, and as a result lead to less than ideal outcomes.
So, what is the reality that insolvency practitioners need to deal with? Broadly, we see four factors that change the game:
Falsification or non-existent books and records.
Some stakeholders trying to gain an unfair advantage.
Liquidators claiming that it isn’t a fire sale, but it is!
Transparency versus commercial reality.
Falsification or non-existent books and records
When selling businesses or goodwill, or in collecting assets, or even when admitting creditors’ claims: insolvency practitioners should be able to gain information and guidance from the books and records. But the books and records of insolvent entities are often; make that usually, incomplete and or misleading and sometimes deliberately so. Sadly, and this may surprise some readers, a percentage of directors and bankrupts have been known to be less than honest in their dealing with insolvency practitioners.
Added to this, and almost inevitably, the judgment of failed managers, the very people who should know the facts, is flawed.
Some try to gain an unfair advantage
Even some debtors, creditors, or employees will deliberately, or perhaps subconsciously, distort facts in an attempt to obtain a better financial outcome for themselves. In some stakeholders’ minds, the view seems to exist that they have been “duded” by the insolvent business, and are therefore entitled to do whatever they can to reduce their loss.
Liquidators will try to tell you that it isn’t a fire sale, but it is!
Rarely do insolvency practitioners have the benefit of unlimited time or dollars to market assets, nor the ability to pretend that a quick sale is not vital. Over short periods, stock often deteriorates or may be pilfered, landlords want payment for ongoing occupancy, vital staff leave, and goodwill evaporates so that a “going concern” approach becomes a remote possibility at best.
Almost everyone can tell a story of an insolvent entity’s asset that was sold way below cost or replacement value, or of a debtor that got away without paying a due debt. Although insolvency practitioners will do all they can to avoid such outcomes the reality is that sometimes they are unavoidable.
Transparency vs. commercial reality
We tout transparency as being part of the Worrells’ point of difference. As insolvency practitioners we are bound by our professions code of conduct to communicate transparently and effectively. However, at times, this competes with the objective of getting the best result for creditors. Often, insolvency practitioners will enter into negotiations regarding a sale, or a settlement in return for unwinding transactions. Such negotiations can only be completed with a degree of professional “in confidence”, subject always to the stakeholders right to be satisfied that the eventual outcome is appropriate and in the interest of creditors.