Insolvency is essentially defined as the inability to pay debts as they fall due or where liabilities exceed assets, whether this be in relation to a company or an individual.
What is insolvency?
Corporate insolvency covers a range of procedures such as administration, liquidation, receivership or a company voluntary arrangement (CVA). Bankruptcy and an individual voluntary arrangement (IVA) are insolvency procedures that apply only to individuals.
Insolvency as a practice area is extremely varied, as we have to deal with any issue that could arise for a company or individual, so it brings in elements of employment, banking, property, litigation, corporate and many other practice areas. The combination of different disciplines under the umbrella of insolvency is something that I really enjoy.
What’s the working culture like in an insolvency department?
From my experience it is very team orientated – everyone works together to get the job done. At all levels of the team, each person is willing to pull their weight and contribute, which makes for a very supportive working environment. Our team is made up of both contentious and non-contentious specialists and we work closely with colleagues in other disciplines where required, which means the work is always varied and interesting.
What’s the typical makeup of an insolvency lawyer’s client base?
We typically work very closely with the insolvency practitioners (i.e. those appointed as administrators, receivers, liquidators or trustees in bankruptcy) and accountants, although we also receive direct instructions from many banks and other funders (such as Asset Based Lenders).
We also often advise funders, companies and their directors as to trading, security and structural issues outside of any formal insolvency process, either in preparation for a formal insolvency process or with a view to finding a solution to the company’s problems that avoids such a process.
Which other practice areas do you work most closely with?
From my experience, the team work most closely with employment, construction, property and ABL (asset based lending).
Our property team often come and talk to us when their client is faced with an insolvent tenant, or we may need their input when a property is the major asset of the company. We work closely with our construction and property teams on providing training to their clients on dealing with insolvent developers, which is an increasing concern given the present economic climate.
What skills make a good insolvency lawyer?
Above all, you need to be organised and pragmatic. Being able to prioritise your workload and organise yourself is very important when new matters are coming in thick and fast. Attention to detail is important, whether you are drafting documents to be filed at court or an asset sale agreement; the details of the document must be considered carefully. We sometimes deal with difficult people on behalf of our clients too, so I would say the ability not to be easily intimidated or fobbed off certainly comes in handy.
What impact has the recession had on your practice area?
Needless to say, our workload has definitely increased. It is unusual at the moment for a day to go by without hearing of another company that has gone bust and as such, we find ourselves becoming frequently involved with new matters, which is great.
What recent key insolvency deals has your firm been involved in?
We recently acted for the administrators of the well-known retail store, Adams Childrenswear, which included the sale of the company, following a protracted bidding process. The Business Recovery and Insolvency team at Hammonds have also recently advised key stakeholders on a number of other retailers, including Whittard of Chelsea, Empire Direct, Greenwoods Menswear, Stylo Barratt Shoes and Observer Standard Newspapers.
What do you think will be the future shape of the insolvency as a practice area?
I think the current downturn will keep us busy for a few years to come. Insolvency and restructuring will grow as a practice area as a result of our increased workload and will become a more prominent department in any law firm. Even once the recession ends, there will be a significant tail end of insolvencies to deal with, as historically more companies enter a formal insolvency process coming out of a recession than during one.
What phrase is an insolvency lawyer most likely to use and what does it mean?
A phrase that is becoming more frequently used is “pre-pack”. This refers to a pre-packaged sale of a business and is where a company is put into administration and then immediately sold under an agreement that was negotiated before, and dependent upon, the administrator being appointed.
This process is becoming increasingly popular and more frequently used, but must be treated with caution, as the administrator must ensure that he has acted with proper regard for the interests of creditors, as he is required to do under the Insolvency Act 1986.