The Law: Insolvency

When the economy is down insolvency work is high, and while work is varied lawyers must be prepared for its negative side

The Law: InsolvencyWhats it all about?
When a company runs into financial difficulties a number of professional advisers, including insolvency lawyers and accountants, are called in to remedy the situation. A company is technically insolvent if its debts are greater than its assets.

If a company fails to pay its bills then its creditors (the individuals and institutions a company owes money to) may call in the administrators to help rescue the company from financial collapse. Administrators are typically partners at accountancy firms for instance the administrators for collapsed car manufacturer MG Rover were Pricewaterhouse-Coopers partners Ian Powell, Tony Lomas and Rob Hunt.

When a company goes into administration a number of things can happen. Some of the companys assets may be sold off to decrease its debt, or the company may be sold off in bits to repay its debt. If these solutions prove unsuccessful then the company may be wound up; this is also referred to as liquidation.

The pros:
Large variety of work and clients
Involvement on high-profile deals
The chance to do court work

The cons:
Considered by some to be a negative practice area
Work is cyclical when the economy is booming insolvency lawyers are less busy
Hours are long when a big restructuring is underway

Look out for phrases such as going into administration in newspapers financial pages for more real-life examples of cases involving insolvency lawyers
And dont forget, in the UK it is individuals, not companies, who become bankrupt

The working culture
Insolvency lawyers will go through periods of intense work followed by quieter moments. Insolvency work tends to pick up when the economy slows down as more companies find themselves in financial difficulty. For instance, in recent months a number of retailers, including the likes of womens clothing chain Kookai and off-licence chain Unwins, went into administration due to difficult trading conditions.

Insolvency involves a lot of research because regulation is changing constantly and much of this is carried out by junior lawyers. In contrast, senior lawyers will find themselves leading cases, drafting documents and meeting clients.

Why is this interesting?
Although insolvency is quite a specialised area, lawyers will advise on companies working in a range of sectors, from energy to media to leisure. Insolvency practices are also normally split into contentious (a situation where parties are in disagreement) and non-contentious work, so it helps if lawyers have a working knowledge of both areas, as some insolvencies often involve litigation.

Personal and legal skills required
Insolvency lawyers need a good knowledge of all the regulatory issues surrounding administrations and should have the ability to pick up knowledge about different industries very quickly. Lawyers also need the temperament to be able to work in an area that involves the end of something, rather than the beginning of something new.

Case Study

The operators of the UKs link with mainland Europe, Eurotunnel, are in the midst of one of the largest debt restructuring projects in history.

Lawyers, creditors and bankers are negotiating with each other in an attempt to slash Eurotunnels unmanageable 6.2bn debt to 2.9bn.

Magic circle firm Clifford Chance and New York-based Sullivan & Cromwell are advising the banks, with Freshfields Bruckhaus Deringer, Herbert Smith and Weil Gotshal & Manges advising Eurotunnel.

Meanwhile, US firms Kirkland & Ellis, Cadwalader Wickersham & Taft and Debevoise & Plimpton are acting for creditors European Investment Bank, MBIA and Oaktree respectively.

With so many parties with interests in a restructuring worth hundreds of millions of pounds, it is no wonder that negotiations have been ploughing on for years.

Most recently Allen & Overys client Deutsche Bank found itself blamed by the company for halting talks with unreasonable demands. It offered an alternative plan to restructure the companys debt after a solution from Goldman Sachs and Macquarie Bank had already been agreed with the parties.