Buchler Phillips Quarterly Bulletin No.2

Shaping up

Andy Murray gained more than half a stone in muscle to reach the top three in tennis. Gym work, track training and 50 pieces of sushi a day helped. For all athletes – and for the rest of us and our businesses - new routines are important for achieving different and better outcomes. Sometimes we need a new regime to help us adapt to changes in an environment which are beyond our control. Stress testing, risk management, action points from Basel III: the goalposts are constantly moving all over Europe.

Greeks wearing lifts

The rallying of Europe’s governments and central banks to give Greece a leg-up should focus the restructuring and turnaround industry on how it can help businesses across the EU at a grass roots level.  It is possible for economies to reinvent themselves from the bottom up if SMEs have access to the skills and advice needed for remedial action that can build sustainable recovery and even growth.

EU insolvencies are beginning to decline, especially in southern Europe, having run at around 200,000 a year since the financial crisis. But global economic recovery can only be sustained and accelerated locally if the reform of outdated legal frameworks for business is stepped up across the EU.

Mission possible

INSOL Europe, the insolvency trade body, is pushing hard for reform and making some progress. The industry is clear on where change is needed. Many EU countries are still slow to support the early restructuring of companies in trouble; this often leads to potentially viable businesses being liquidated. While cross-border insolvency situations can be particularly messy, the UNCITRAL model law adopted in 1997 has gone a long way to assist member states to equip and modernise their insolvency and legal frameworks to be more effective.  

At a personal bankruptcy level, ‘honest entrepreneurs’ may be denied the chance to build new businesses by systems that fail to discharge them quickly enough. It is arguable that credit would flow more efficiently and entrepreneurialism would improve across Europe if those starting and backing businesses could be surer of a speedy, fair and constructive resolution if things took a turn for the worse. Predictability is key.

Way to go

It is indeed encouraging to learn that, individually, some of the countries with the greatest need have been making practical reforms: Spain is trying to speed restructuring processes; Italy has focused on earlier protection from creditors; Portugal has shrunk lengthy and costly legal involvement by encouraging out-of-court settlements. Such pragmatism should be reflected right across the EU. As ever, success for insolvency practitioners is about striking a balance between efficiency and protection.

At your service

Services output is widely forecast to be the main driver of UK economic growth in the next three years and exports of UK services globally have grown steadily in recent quarters - but not as strongly to the EU. Harmonisation can help the advisory community, in particular, but innovation remains as important for professionals as it is for Tech City. Services must be compelling, relevant and measurable for clients. EU businesses have clear problems; the solutions and benefits promised by those selling their help need to be clearer.

UK outlook

UK quarterly GDP growth slowed materially in Q1 2015, from 0.6% to 0.3%, but the OBR expects the UK economy to grow approximately 2.2% this year.  Base rates are still expected to go up within 12 months, pursuing a gentle course of quarter-point increases. Productivity growth, especially in manufacturing and industry, is set to remain low by historical standards. SMEs in particular need to tread carefully, faced with higher property and borrowing costs. There is still much shaping up to be done on our own doorstep.