So far in our series on what a formal insolvency does to a previously solvent balance sheet and how it impacts stakeholder recoveries, we have looked at overall principles, shrinking non-current asset values, diminishing current asset recoveries and ballooning liabilities. Now we turn to the contentious issue of the cost of an insolvency process. Unfortunately, there is little understanding in
When the government launched its business support loan schemes early in the pandemic, there was widespread praise for the initiative. The speed of roll out, simplicity of the application process, initial repayment holiday and low interest rates were just what embattled businesses needed at a time of massive disruption and huge uncertainty. The Bounce Back Loan (BBL) scheme aimed at
Following our first three articles on business devaluation during insolvency, we now turn our attention to the liabilities in the balance sheet. What is often not realised is how a business’s liabilities can grow faster than Jack’s Beanstalk once the business has transitioned from a going concern to a financial downturn ending in insolvency proceedings. This can occur on a
In this third instalment on the devaluation of a business during insolvency, we turn our attention to current assets. These assets can not only shrink alarmingly in value during insolvency proceedings, but can also, in some circumstances, actually turn into net liabilities. How can current assets lose value? Inventories Inventories include a wide range of different items. From raw material
In our first article in this series, we looked at the mystery of why apparently solvent companies end up heavily devalued and paying almost nothing to their unsecured creditors if they have the misfortune to file for insolvency. Now we dive into more detail into the conflict between book values and real life realisations in an insolvency context, starting with a
One of the great commercial puzzles is why the unsecured creditors of an apparently healthy business end up only recovering pennies in the pound on their debts and the shareholders get wiped out, if the company files for insolvency. Published accounts The bedrock of credit and investment risk management are the annual accounts published by a company. In days gone
