Protecting brand value: communicating through the insolvency storm

September 2, 2020 • 7 minute read

Protecting brand value: communicating through the insolvency storm

Protecting brand value: communicating through the insolvency storm

According to statistics from The Insolvency Service, the second quarter of 2020, when the full force of the Coronavirus was impacting the UK economy, saw the lowest quarterly total for corporate insolvencies since 2010. The number of company insolvencies decreased by almost one-quarter compared with the previous quarter, and by almost one-third compared with Q2 of 2019.

The striking disconnect between the widespread disruption felt across the UK economy, and the relatively low number of companies driven into insolvency, was largely accounted for by the various Covid relief programmes implemented by the Government.

Principal credit is generally given to the Business Interruption Loan Scheme and the Job Retention Scheme, both of which are due to come to an end in the Autumn, which could spell further financial distress for some businesses. In the words of the President of R3, the insolvency and restructuring trade body, ‘we have not seen the full impact of COVID-19 on businesses because of the lifeline the Government’s support has provided.’

As the various relief schemes end and companies are left to stand entirely on their own two feet without a guarantee of a return to pre-Covid ‘normal’ levels of trading, some companies will be facing up to the reality that they are heading – perhaps inexorably – towards insolvency. This brings with it significant communications challenges for companies seeking to navigate safely through a period of distress and for those entering into a formal insolvency proceeding. Reputation and brand risk run high, including for insolvency practitioners and advisors.

In April this year, we introduced our Reputation in Restructuring Framework, a five-part model outlining the common factors which define the reputational risk profile of an insolvency, and which influence the insolvency communications strategy:


  1. Narrative – the story and reputational trajectory of the business to date (what is its track record, is the insolvency a shock or was the writing on the wall?)
  2. Personality – involvement of a public figure or celebrity (and/or the ‘notoriety’ and visibility of the CEO / leadership team)
  3. Locality – local significance (large employer in a town, for example), influence of local stakeholders and the regional press
  4. Scale – the size of the business, the number of employees affected, or the size / buying power of its customer base (i.e. the extent of the potential ramifications of the insolvency)
  5. Context – the wider business and social environment (is there a bigger story that this business can be made a part of? For example, ‘the death of the high street’ or ‘the impact of coronavirus’.)


Rising media scrutiny

As we highlight in our report, New Rules, New Risks, while at the start of the Coronavirus crisis stakeholders and the media were generally benevolent to companies seeking to grapple (often imperfectly) and come to terms with wholly new operating conditions, that sentiment has now shifted. Scrutiny is far more stark.

The press’s eye is trained on any story which offers a tangible reminder or microcosm of the full effects of the Coronavirus, especially as it impacts employees, ‘real’ households, or high-profile and recognisable businesses. The court of public opinion is a powerful force, and how a company handles this turbulent time will have significant implications for its future business – whether it is to thrive or fail in the new normal.

Business failures will, therefore, be examined and reasons for job losses sought. The blame game will be heated, whether that blame is directed at management, market forces, or policy makers. Insolvencies are very likely to ramp up in frequency (according to the Financial Times, professional firms are preparing for a ‘fresh wave’), and they will be in the spotlight when they do.

This situation is exacerbated by the fact that the UK’s insolvency regime itself is no stranger to fierce scrutiny. For example, the surge in the number of CVAs over the last few years has drawn the publicly-aired ire of many landlords, creditors and investors, who feel CVAs are an unfair and arbitrary interference in market forces, depressing landlords’ rental income and reducing the competitiveness of the market as a whole (for more information see our special report on CVAs – here).

This all adds up to an already complex reputational landscape for brands facing the prospect of insolvency, as well as their advisors and insolvency practitioners.


Why communications matter

During a business restructuring process, and insolvency proceedings in which the company in question continues to trade (such as a CVA), communications are key to retaining brand value and protecting goodwill. Information must be communicated with clarity and transparency to stakeholders, including customers, employees, investors, other creditors and also the media, not least in order to maintain as far as is possible market share and cash flow generation.

These same factors are critical for companies which enter into an insolvency and whose businesses are marketed for sale. Brands can be bought out of administration, for example, and can be resurrected – particularly those brands which have strong heritage and loyal customer base. Take, for instance, Nike’s rescue of the 105 year old brand Converse in 2003 – transforming it from bankruptcy to a $1.4bn business.

In addition, some companies, simply by virtue of their market visibility or that of their business / brand, will attract significant public and media attention. This is particularly true of much-loved household brand names, or companies with cultural significance such as sports clubs. Whatever the future for the company, people will want to know the story, and the company’s management or the insolvency practitioner will have to carefully manage the process of media engagement and public relations in the discharge of their fiduciary duties.

As they seek to smoothly navigate a path forward for the company and secure as positive an outcome as is possible for creditors, it is beholden upon insolvency practitioners to consider communications strategy in the context of the reputation in restructuring framework, as it will ultimately impact:

  • Creditor visibility and transparency
  • Negotiations with creditors (such as landlords)
  • Customer and supply chain relationships
  • Ability of the business to continue to trade and generate revenue
  • Perception and marketability of the business / brand to buyers or investors
  • Current or potential litigation strategy
  • Reputation of the insolvency practitioner, particularly where a business continues to operate and provide services (for example, a school or utilities provider)

In other words, it pays to get insolvency communications right.

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