Brighter outlook as warm front moves in from creditors
25/06/2007

It is not just the earth’s climate that is subject to the greenhouse effect – a dramatic ‘warming’ of the business recovery climate is also taking place.

This is the view of Mark Colman, a manager at UK top-10 recovery and turnaround firm DTE Leonard Curtis. He believes a more tolerant attitude among creditors is creating a healthier commercial culture.

“Until recent times, when a company found itself in financial difficulty, the principal creditors would have no sympathy when taking steps to recover their debt,” said Colman. “Threatening letters, court summonses, warrants of execution and winding-up petitions were commonplace.

“In some cases, these actions are still required and remain a useful tool by creditors to recover their liability. However, we have seen in many cases a change, or warming,  in creditor attitudes over recent times, particularly the principal creditors such as utility companies and the crown departments.”

If managed constructively by the company’s directors and external advisers, these creditors will often support and work with management to overcome what may be short-term cashflow difficulties.  Creditors are realising that the failure of a customer will not only result in little or no return on their liability, but the loss of future revenue and profits.  In terms of the crown departments, adverse publicity may also be a key factor if the winding-up of a company results in large numbers of redundancies.

Colman continued: “The key to obtaining this support is for the directors to acknowledge the problem at the earliest possible stage and avoid ‘The Ostrich Syndrome.’  In addition, once the problem has been identified, a strategy needs to be implemented that may involve both financial and operational re-structuring, sometimes involving difficult and unpopular decisions that need to be addressed.

“The next step, and possibly the most fundamental, is to keep the creditor informed of the situation at all stages.  The worst possible scenario is to make false promises such as: ‘The cheque’s in the post’, ‘We’re expecting a large payment in next week and then you’ll get paid’, and so on.” 

By assisting over 350 businesses to re-structure their crown debt, DTE Leonard Curtis has helped to save businesses with short-term problems but with long-term viability, in addition to safeguarding thousands of jobs.  

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