Is Turnaround & Restructuring Work a Conflict of Interests for Insolvency Practitioners?
A business that is already in financial distress or heading that way really needs early restructuring & turnaround advice to hopefully save it from becoming formally insolvent. At this stage, you’ve most likely tried sorting the problem yourself and know you need outside help. Getting advice, sooner rather than later, is absolutely paramount if there is going to be a chance of saving the business.
Question is, how do you choose the right person to advise you?
Most importantly, the advisor must have experience and in-depth knowledge across various disciplines. The advisor should, of course, have knowledge of finances and business processes as well as the ability to evaluate accounts and predict future cash flows. They should also be conversant with the legal compliance issues, such as HR and redundancy, litigation and insolvency law. Furthermore, the advisor has to be familiar with the various options open to the business in different circumstances, and be able to negotiate these options with the stakeholders.
That’s why often in these situations business owners turn to an insolvency practitioner (IP) to advise on a potential turnaround. The issue here is that whilst most IPs have this ability to help, often it can cause a conflict of interest. The way IPs deal with this potential conflict also varies hugely from practitioner to practitioner.
So why is this an issue?
Because IPs in their formal capacity are generally appointed by the creditors of the business and hence try to work in the best interests of creditors. In contrast, restructuring and turnaround advisers are appointed by the company and primarily work for its interests. Hence the potential conflict.
Of course, IPs that do undertake turnaround & restructuring work would argue that they follow a rigorous code of ethics and would identify any potential conflicts before they arose but history has proved time and time again that this is often harder in reality than in theory. You only need to look at the recent case of VE Vegas Investors IV LLC and others v Shinners and others  EWHC 186 (Ch) for further proof of that. This case should serve as a reminder to IPs of the need to be aware of clear conflicts of interest and deal with them professionally when they arise. That’s why, in our opinion, it’s best to use an independent turnaround professional when you’re looking for turnaround advice and use a qualified insolvency practitioner when you need a formal insolvency procedure.
Kingsland Business Recovery are insolvency experts. For more information on this article or any other insolvency advice, please feel free to contact one of our directors on 0800 955 3595 for a no obligation, confidential chat. Or alternatively, drop us an email at firstname.lastname@example.org