Rising insolvencies pose communications challenge for practitioners: Tal Donahue writes for TRI Strategy
April 28, 2023
Senior Associate Director Tal Donahue recently contributed an article to Turnaround, Restructuring & Insolvency Strategy analysing the communications lessons to be drawn from press reporting on some of the biggest insolvencies of the past year.
As company insolvencies in the UK continue to soar (the latest monthly figures from the Insolvency Service showed a 16% rise on the previous year), business restructuring has never been higher on the media and public agenda.
This dynamic creates complexity for Insolvency Practitioners seeking to effectively manage stakeholders, perform their fiduciary duty to be clear and transparent and, in cases where a going concern sale is the objective, retain goodwill in the pursuit of returns for creditors.
Goodwill and brand value
Brand and reputation are an essential source of value for companies, and the primary component of goodwill. As described by key case law relied on by HMRC and the Insolvency Service in their definitions, goodwill is: “the benefit and disadvantage of the good name, reputation and connection of a business. It is the attractive force which brings in custom. It is the one good thing which distinguishes an old-established business from a new business at its first start.” (Lord Macnaghten, IRC v Muller & Co Margarine Limited  AC 217).
Although somewhat vague and hard to define, brand and goodwill are incredibly important and, while not (always) recorded on the balance sheet still a demonstrably valuable asset.
In some cases, it is the most valuable asset a company has.
According to the Financial Reporting Council, goodwill represented an asset class totalling £397 billion for the FTSE 350 in 2021 (18% of total assets).
In an insolvency scenario the value of goodwill is quickly eroded and, as the Insolvency Service notes, where a business has ceased to trade the goodwill is likely to be worthless. Its preservation, where a turnaround or sale is the goal, is therefore essential.
Effective communications are key to achieving this.
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