The Institute for Turnaround has, like many other professional bodies, shifted its annual conference to a virtual platform spreading over two mornings this week. For me it’s an invaluable opportunity to catch up on what is current across the profession, gauge how my peers are feeling and get some useful CPD points!
David Gauke, former Chief Secretary to the Treasury, Secretary of State for Justice and Lord Chancellor gave the opening keynote speech and provided a fascinating insight into the minds running the Treasury at the moment.
Gauke, complete with the appropriately impressive bookshelf, shared some pretty scary numbers about the UK economy. Here are just two:
- at the start of the current fiscal year (pre-COVID), the estimated government borrowing for 2020/21 was £55bn. Anticipated borrowing has now risen to £350bn – an almost seven-fold rise;
- To fund this additional debt the government needs an additional £40bn of revenues, equivalent of 7p on the basic rate of tax or 6p in the £ on VAT;
So tax rises seem almost inevitable even if not in the next year to 18 months. And all this comes at a time when there is Brexit uncertainty and fears of a second spike in the pandemic.
When you distil this down to the company level, the worry has to be that businesses will not be able to service let alone repay the debt they have built up over the last few months. The “month 13” problem, the time when these deferred costs become payable could result in a spike in unemployment, default on debt and insolvencies.
The delegates this morning were pretty unanimous that 2021 will see a peak in corporate failure and equally of one mind that the UK economy won’t return to int Q4 2019 levels until 2022 at the earliest.
Gauke concluded his remarks by discussing some of the options that might be explored to assist businesses cope with this debt burden. These included; the conversion of loans to grants (effectively writing them off), extended repayment holidays, some form of debt to equity via profit participation or even a student loan-like conversion of the debt to have the repayments calculated on a contingent basis.
The other main discussion of day 1 was a work-through of the new moratorium provisions of the Corporate Insolvency and Governance Act 2020.
The over-riding impression I gained from this session was that there is a realisation among IPs that they will need significant assurance in their role of monitor of a Restructuring Plan. Rob Lewis, a restructuring partner at PWC, was clear in his opinion that IPs will look to IfT accredited practitioners to provide that assurance.
Whatever the future holds, it seems that turnaround practitioners are going to be much in demand.
