Behind the scenes of insolvency: Demystifying the role of insolvency practitioners

We spoke to Sam Talby, a licensed insolvency practitioner and Director at Undebt.co.uk Ltd, about the outside view of insolvency practitioners, the role of failure in resilience, tips for business owners who are struggling, and much more.

Could you tell us about your background in business?

I am a chartered certified accountant, an alternative debt resolution provider, and a business recovery and insolvency practitioner operating throughout the UK but primarily in the South West with over 30 years of experience. I am a director and shareholder of Undebt.co.uk Ltd, which is a well-known Business Recovery & Insolvency practice in Bristol. We work around the country with SME owners, both large and small, who are facing financial or operational uncertainty, and we provide turnaround to closure services in the corporate sector.

We also deal with individuals who are facing financial problems, but primarily people with businesses, professionals or people with assets which are at risk, if they fall prey to bankruptcy or those kinds of procedures. Whilst we are not a large national firm, we do punch above our weight in providing advice and solutions to owner-managed corporate businesses.

I am regulated by the Institute of Chartered Accountants in England and Wales, and it is part of our philosophy to act and be seen to be the honest brokers in the processes we employ which are heavily regulated with the integrity of the process being paramount. Stakeholders, including the public, need to have confidence that what we are providing is not only the correct solution but in tandem ethical. As part of regulation, I am required to undertake 40 hours of structured continuing professional development (CPD) from 1 November 2023 to ensure key skills, technical ability and professionalism are up to date.

Insolvency practitioners are often viewed as ‘vultures picking at a carcass.’ Is this a myth you’re keen to bust?

There is a famous joke: what is the definition of an insolvency practitioner? It’s someone who arrives after the battle, and bayonets all the wounded, pawns their possessions and charges their time to the relatives!

This may be true of unregulated advisers, but this is absolutely not the case for those of us who are regulated and insured Practitioners.

We have just completed a turnaround of a large hotel in the South West. Its owners were facing a winding up petition from HMRC and we were able to get under the bonnet of the business and design a plan which enables the company to return to solvency. We explained the time needed to achieve the plan and this was agreed and has led to the saving of over 40 jobs and avoiding Liquidation. Part of the reason the plan was accepted was that we had acted as honest brokers between HMRC and the Company.

The recent headline case of Wilko is a classic example of people thinking “Here goes another one,” but if we are involved at an early enough stage and can introduce different stakeholders, such as investors, it is possible to save businesses. It is all about the option of time. Short timelines result in hard decisions and outcomes. The more time is available to address problems the more time there is to explore rescue and other non-insolvency options.

The impact of business failure does impact on the economic chain, in Wilko’s case the collateral damage will be to its supply chain. HMRC is normally one of the large creditors, and they are willing to listen and where appropriate work out a plan going forward. But if what you have to offer is poorly designed and ill-defined, they will not support it. With insolvency practitioners and restructuring accountants, you need to pick people reputationally capable of doing the job. Certain websites offer ‘all singing, all dancing’ and are able to do everything. My advice is that they need to be regulated, insured and answerable for the advice and processes offered.

I describe myself as being a seasoned professional. I have over 30 years of experience from the shop floor to the boardroom covering a variety of different industry types, so I have a wealth of experience which I can apply. The earlier the intervention, when financial or operational difficulties are identified, we can make introductions which may lead to the avoidance of insolvency procedures. It is my long-held belief that intervention of a non-insolvency kind is the best way forward because, after an insolvency intervention, the business is never, whether it is transformed via an administration or some other process, the same.

Entrepreneurs are very determined, often hardheaded people and often don’t like failure. Do you have any tips for people going through the process or may have to go through it?

As I predominantly deal with the SME market and larger private companies, my top tip would be to understand your cash flow; how you make your money; what are your critical expenses you need to make in order to generate turnover. Understand your Cash Cycle! Identify where there is insufficient cash to cover those costs.

This may mean borrowing to fund the gap or if the business is in the shadow of insolvency seeking help from us.

As a firm, we have in the past been successful in agreeing to an extension of credit terms with creditors. This takes a lot of pressure off the business. It is very important that if you realise that you have got a ‘cash hole’ or an impediment coming up (such as a big bill) that you address it quickly. A lot of people, when they hear the sad story from the director, feel that ‘they’re not being honest’.

However, what I find is that most directors are very honest in their approach, and they just want to get on with the business. Maybe they are experiencing economic conditions that they might not have dealt with before and that is why they are encountering problems. We can help in those circumstances, by looking at what they are doing, looking at their cash flow, and suggesting improvements. If it is early enough, then we can avoid all the hardships that insolvency brings.

You’ve got a 30-plus-year career under your belt now. There’s lots of doom and gloom post-Covid, but where does our current economic climate compare to other turmoil we’ve experienced over the years?

When I first began my career interest rates were 15%. However, the multiples against that in terms of income and housing mortgage rates were not as severe as now. What is happening these days is that people are stretched, their marginal income is less and they are less able to combat any increases. The mantra that has been put out by the Bank of England is that they are trying to reduce discretionary spending to reduce inflation, but if your main expense is your mortgage, or if your main expense as a company is your bank loan, you have got a real problem.

However, recessions are cyclical. They have common features, and you know that we will come out of this at some point and the economy will improve, there will be real growth and there will be better times ahead. Saying that when you’re in the midst of it, it is cold comfort to be told that everything is going to get better at some point in the future, without people telling you where that future point is!

You see entrepreneurs at their lowest point in your line of work. Do you ever see people who have come out the other side and are proud of their entrepreneurial spirit?

The unfortunate reality is that there needs to be an acceptance that there will be winners and losers in the economy. You need resilience in business, and someone who’s had a failure will build that resilience. As long as they get up and go again and have a good business idea, they will probably succeed and that is the great thing about business.

Anecdotally, looking at the Great Depression, Walt Disney went bankrupt a few times. If it was not for a mouse and a duck, you would never have heard of him. Henry Ford had severe financial problems, but he came good through persistence and resilience. There are plenty of other people in the business community who have had failures and succeeded. Obviously, if someone is negligent, reckless, or fraudulent, the system is there to take them out and punish them for doing that. However, people who are genuinely trying to make things work should be allowed to succeed.

Do you have any other tips for our readers?

It can be very lonely being an SME owner, especially if you are leading the board and you are the main person. You need a good friend or partner around you to listen and allow you to express your doubts, insecurities, etc, in a place of safety. This will let you reflect and move forward. Do not hold it all in, share it with someone you trust implicitly.

You want to be in a headspace where you can make clear decisions based on logic and an assessment of acceptable risk. We do not want people to make risky decisions that will cause loss, but what we do not want is entrepreneurs and business owners not to take risks to advance their businesses. For a business to thrive, sometimes you have to take a risk and that is why people get the rewards for being in business.

If things do go wrong my best piece of advice is to get in touch for an initial free and confidential meeting.