Tue, Nov 3, 2020

The Trouble in Turnaround

On March 23 this year, Prime Minister Boris Johnson sent a shock wave through the economy by announcing that the UK would be going into lockdown and that some businesses would be required to close indefinitely.

As the pandemic gripped the country, there was immediate concern for family, friends and colleagues.  At the same time, Duff & Phelps reacted to the needs of our clients by understanding what the lockdown would mean for many businesses. We summarized information and provided analysis to help clients navigate through this unchartered period.

We expected that there would be many turnaround assignments, but for a number of reasons, this did not initially happen. 

While revenues in numerous sectors evaporated overnight, the government support measures announced were just as rapid. While many schemes were criticized for taking too long, there can be no question of the government’s aid to help avoid large scale business failure. The key UK government business support measures included:

  • Furlough scheme

  • VAT deferral and HM Revenue & Customs (HMRC) Time to Pay (TTP) support on PAYE/National Insurance

  • Temporary measures relating to statutory demands and winding-up petitions

  • Protection from landlords

  • Government-backed loans:


    • Coronavirus Business Interruption Loan Scheme (CBILS)

    • Coronavirus Large Business Interruption Loan Scheme (CLBILS)

    • Bounce Back Loan Scheme (BBLS)

Viable businesses require robust cash flows, and this basket of government aid has assisted businesses with cash flow support. In addition, we observed that once they realized the impact of COVID-19 on the business community as a whole, businesses tried to find ways to support each other.

When the phone began to ring, all the tried and tested principles of structuring a successful turnaround were suddenly clouded in issues. Looking back at previous financial performance held little relevance, forecasting in the short or medium term was almost impossible, order books and contracts were on hold, and options for businesses were limited. However, one of the key aspects was still very relevant— “cash is king.”

Many of the businesses we were advising went into a temporary mothballed state with all costs minimized, and emergency discussions held with all key stakeholders such as banks, landlords, HMRC and trade creditors. It was then a matter of understanding how the government schemes could be utilized and from there we could begin to understand the various scenarios and any potential funding requirement.

It has been incredible how resilient UK businesses have been and how entrepreneurs and management teams have changed their business models to adapt. It is clear that the furlough scheme and other government support measures have saved thousands of businesses and helped to preserve jobs in the short term. 

However, we know that many company balance sheets have lost value as they take on significant debt to fund revenue losses sustained in lockdown. It must be disheartening for many entrepreneurs to witness equity value built up over many years being eroded and the need to commit to new lines of funding and debt. 

While the government has extended the furlough scheme until March 2021 and has introduced support for repayment terms on government-backed loans and VAT deferral, it could be interpreted as an “extend and pretend” policy that does not fix the underlying issues which businesses in the UK face.

The extension of the temporary measures relating to statutory demands and winding up petitions to December 2020 may prevent a wave of insolvencies due to the inability of creditors to take enforcement action, however, there will come a point where these measures no longer provide protection.

While there are new measures introduced as part of the Corporate Insolvency and Governance Act 2020 such as the moratorium, this will require that independent professionals are comfortable that a rescue of the company is likely, and this could prove to be far from straight forward.

In addition to this, Crown Preference is due to be reinstated from December, 1 2020 which may result in a reduction in funding available to businesses. This will likely only add to the issues already faced.

So where does that leave the turnaround profession? From our experience, it is clear more than ever that turnaround is a marathon, not a sprint. We can already see how this crisis has necessitated change in many businesses. The previous tried and tested approach should not be discarded, as the fundamentals remain important. It is encouraging to see the innovation of businesses, the ‘getting on with it’ approach and how everyone has adapted to virtual communication, as that remains a key ingredient in driving a successful turnaround.

While many businesses have managed to survive in the short term and government support has been extended, with the country now in its second lockdown we anticipate that businesses will continue to face considerable challenges. It is therefore difficult to see how a significant uptick in restructuring in the first half of 2021 can be avoided.


Financial and operational restructuring and enforcement of security, including investigation, preservation and realization of assets for investors, lenders and companies.

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