TPs have an independence from the main creditor bank that allows them to perform the facilitation function in a way that, say, the employee of the bank’s ‘intensive care’ unit would find extremely difficult.

This argument, however, can be pushed too far. It would be an exaggeration to see most informal turnaround processes as inclusive of all creditor voices and interests. Negotiations are often carried out secretly, press coverage is usually avoided and TPs will tend to view negotiations as an exercise in keeping key players on side. Trade or small unsecured creditors are, accordingly, often left out of these processes and dealt with only when they create difficulties on discovering what business solutions are being negotiated. It should also be noted that the modern tendency to finance companies from a variety of credit sources means that TPs often have to conduct negotiations with a large number of banks, venture capitalists, bondholders, distressed debt holders and others. The number of these creditors and the divergence of their attitudes, approaches and expectations231 makes the TP’s task all the more difficult and, in so far as it does, this will make it increasingly unlikely that negotiations will be conducted in a sufficiently inclusive manner to prove receptive to the voices of trade and smaller unsecured creditors.232

Expertise

In asking whether the TPs system ensures expertise in the supply of specialists, it has to be acknowledged, first, that turnaround professionals, as a group, display some of the characteristics commonly associated with the self-regulatory professions.233 The Society of Turnaround Professionals was established in late 2000 and was renamed the Institute for Turnaround (IFT) in June 2008. The STP’s stated mission was to be the ‘principal source of the highest quality practitioners implementing and advising upon successful turnarounds for the benefit of the national economy and all stakeholders’.234 The Society saw its creation as ‘part of

231On such divergent expectations see Roome ‘Unwelcome Guest’ and further ch. 7 below.

232The stress that the fragmentation and globalisation of credit imposes on informal processes has been noted in relation to the banks-controlled London Approach where similar considerations apply: see J. Flood, ‘The Vultures Fly East: The Creation and Globalisation of the Distressed Debt Market’ in D. Nelken and J. Feast (eds.), Adapting Legal Cultures (Hart, Oxford, 2001); L. Norley, ‘Tooled Up’, The Lawyer, 10 November 2003 and ch. 7 below.

233On professional self-regulation generally see Baldwin and Cave, Understanding Regulation, ch. 10; see also p. 199 above.

234STP home page (www.stp-uk.org). See now the IFT home page.

232 the context of corporate insolvency law

the drive towards the rescue culture in the UK’ and reported that its advent was encouraged by the UK Government, the clearing banks, other financiers, private equity providers and leading accountancy firms.235 The STP claimed that, in a very short time, it generated a membership of leading and expert professionals. These did not all possess the same qualifications but all had ‘extensive experience of implementing, initiating and advising’ on recovery strategies. They comprised the following: independent company chairmen and chief executives (sometimes known as ‘company doctors’); other independent company executives with particular skills relevant to turnaround (for example in finance, operations, manufacturing and so on); specialist advisers on turnaround with accountancy or consulting backgrounds; and senior representatives from a variety of stakeholders who specialise in turnaround, including bankers, institutional investors, asset lenders and venture capitalists. As at 2007 there was an STP membership of 188, of whom 122 were full members and 66 were associate members.236

The STP’s objectives were stated in the kind of terms that are commonly expressed by a self-regulatory body. It aimed to advance the theory and practice of corporate turnaround; to provide high standards of practice and professional conduct; and to provide a forum for involved parties to discuss issues relating to turnaround. The Society also combined representative and regulatory roles – to ‘make the case for corporate turnaround to the business community, the UK Government, academia and the media’.237 As for quality controls, the STP expressed an intention to regulate members within agreed professional standards with the assistance of other professional bodies, where appropriate; and to organise and conduct examinations for members and others in subjects requiring an understanding of the theory and practice of corporate turnaround.

Are STP/IFT controls as rigorous as those that govern insolvency practitioners? It will be remembered that the Cork Report called for eligibility to act as an office holder in a designated insolvency proceeding to be restricted to persons qualified under the 1986 Act.238 Such quali- fication was to depend on membership of an approved professional body and the Cork Committee was clear that any acceptable professional body

235 Ibid. 236 N. Ferguson, ‘STP Update’ (2007) Recovery (Spring) 42.

237STP home page.

238See Insolvency Act 1986 Pt XIII and the Insolvency Practitioners Regulations 2005 (SI 2005/524) and Insolvency Act 1986 s. 390. See p. 182 above.

would have to meet five conditions.239 It would have to insist on the observance by members of an ethical code of professional conduct, breach of which would involve professional sanctions; there would have to be a professional obligation to account strictly for moneys belonging to third parties; membership would have to be confined to those who have passed a competitive examination (including a paper on insolvency); there must be an effective disciplinary system with powers to deprive defaulting members of the right to practise; and there must be a system of practising certificates, renewable annually.

Turnaround specialists differ from IPs in so far as they are subject to no mandatory regime of training, experience or qualification. Those who are full members of the IFT are, however, subject to a regime of quality control that is principally governed by a system of accreditation. This demands that a prospective member evidences that he or she has engaged in over 1,200 hours of turnaround in the last five years; presents three case studies that he or she has carried out; provides a referee from the stakeholder community connected to each of these three case studies; produces a professional reference; and submits to an interview with a panel comprising, amongst others, two IFT members and an R3 member. Members and associate members of the IFT are also required to sign up to the Institute’s Code of Ethics. This Code is enforced by means of a disciplinary process, which is operated on behalf of the IFT by the Association of Chartered Certified Accountants (ACCA).240 Breach of the Code may result in suspension or expulsion from the IFT. Membership of the IFT, accordingly, offers a kite-mark of quality to prospective clients, though the latter are perfectly free to engage a turnaround specialist who is not a member of the IFT.241

When comparing the regulatory regime for IPs with that governing turnaround professionals it can be concluded that, at the date of writing, there is a good deal of work to be done if turnaround professionals are to be able to claim that their accreditation system offers quality and

239Cork Report, para. 758.

240If a member of the IFT is also a member of an RPB he is subject to the disciplinary process of that RPB; if not he must agree to be governed by ACCA enforcement of the IFT Code.

241A number of turnaround specialists offer their services outside the umbrella of IFT membership. The other organisation that offers membership to such specialists is the UK chapter of the Chicago-based organisation, the Turnaround Management Association (TMA). The TMA requires adherence to a Code of Ethics but operates no accreditation system akin to that operated by the IFT.

234 the context of corporate insolvency law

performance controls to match those that are applicable to IPs or which were demanded by the Cork Committee. The IFT system, for instance, does not involve a compulsory competitive examination including written papers nor does the IFT have the power to deprive defaulting members of the right to practise turnaround – this follows from the nonmandatory nature of the IFT regime.242 Whether there should be equivalence in the regimes governing turnaround professionals and IPs is, however, an issue for discussion rather than assumption. Much may depend on the tasks that are carried out by TPs, the nature of the clients they serve, the ability of such clients to assess quality of service and the importance of the service to the client.

On the first issue, there is a range of tasks that are carried out by TPs. These include, as already noted: conducting independent business reviews; scrutinising existing management; providing new management skills and recruitment work; negotiating with stakeholders on rescue packages (as well as on the terms of pre-packaged insolvencies to cover the possibilities of failure);243 designing financial plans for rescue together with the offering of advice and assistance on refinancing; producing rationalisation and restructuring solutions; offering risk management advice; and providing credit insurance and advice.

On refinancing options, a host of specialists offer a variety of services, including: invoice discounting; asset-based lending (on raw materials, finished goods, plant and machinery, commercial property and so on); networking with private investors (‘business angels’), factors and other debt financiers.244

The above turnaround activities can take place at various points in the progression of a company’s affairs. Turnaround work may include the rescue of companies without recourse to formal insolvency procedures and the rescue of businesses following voluntary arrangements. It may involve the ‘pre-packaging’ of potential administration procedures as underpinnings to informal rescue attempts.245 Turnaround specialists may also act to facilitate the rescue of companies via formal insolvency procedures.246

242The IFT can, of course, deprive defaulters of the right to offer services as a member of the IFT.

243See S. Harris, ‘Decision to Pre-pack’ (2004) Recovery (Winter) 26. On ‘pre-packaged’ administrations see ch. 10 below.

244See Lester, Young and Hawes, ‘Help is at Hand’.

245See Harris, ‘Decision to Pre-pack’. See further ch. 10 below.

246See IPA information page (www.ipa.uk.com).

Turning to the nature of the clients served by TPs, are these wellinformed, repeat players who are able to assess the expertise of the TP and the quality of the service that they receive, or are they poorly placed and in need of regulatory protections? The major lending banks that trigger most appointments of TPs constitute well-informed, highly expert players that may deploy specialist business care units to liaise with TPs. On any list of consumers in need of regulatory protections they will tend to be placed fairly low down in the order. Most TPs, however, are hired, as noted, by troubled companies rather than their banks and the directors of these companies may not be so capable of looking after their own interests as are the major lenders. Such directors are not always repeat players247 and, if not, their lack of expertise in coping with financial challenges may be a reason why they are resorting to a TP. When, moreover, a company encounters financial troubles it may be extremely difficult for the directors to shop around for a TP of known high quality or to research this – the situation may be urgent and all management hands may be on the pumps.248 There may be a strong case for saying that the directors should be able to enjoy confidence in the turnaround services they purchase by employing a TP who is a member of a self-regulatory profession. A separate question is whether that protection should be guaranteed to anyone who employs any TP. This will be returned to below.

The ability of the consumer of turnaround services to evaluate the service is, as noted, of relevance here. A distinction can be drawn, here, between search, experience and credence services.249 The quality of search services can be evaluated in advance of use. (The fish can be seen to be decayed or fresh in the supermarket before purchase.) Experience services can be evaluated after purchase. (The restaurant meal can be evaluated on consumption.) Credence services are difficult to evaluate even after delivery. (The quality of ‘disease-preventative’ food

247 This may, of course, change if the IFT is successful in seeking to persuade more directors to bring in TPs at the very early stages of corporate troubles. It should also be borne in mind that a proportion of directors may have prior experience of corporate failure: see the data provided by CCN, the credit investigation agency, reported in N. Cohen, ‘Dangerous Directors’, Financial Times, 16 December 1996.

248In some cases, it should be noted, the bank that applies pressure to appoint a TP may bring its experience as a repeat player to bear and advise the company’s directors on choices of TP. When such advice is given this may ameliorate the poor informational position of the director-consumer.

249See P. Nelson, ‘Information and Consumer Behaviour’ (1970) 78 Journal of Political Economy 311.