expended in achieving the agreements of involved parties. Here much depends on the numbers and types of creditors involved.

The worry, in terms of expertise and the scope for exercising it, is that banks may not always be attuned to the assessment of equity risks. Some may be better placed than others. The Royal Bank of Scotland set up a unit called Specialised Lending Services in the early 1990s in order to help companies by taking equity share stakes. Banks, moreover, are able to buy in expertise from accountants and other consultants in order to make equity assessments. Whether banks can operate sufficiently astutely to make equity-holding activities profitable is another issue. The National Westminster Bank was forced in 1991 to acknowledge the failure of its Growth Options equity stakeholding venture, and has since conceded that it had not been able to make money out of small equity shareholdings.119

The accessibility and accountability of conversion processes tend to be high in relation to major creditors since their consent will be required for those processes to work. Similarly, the requirement of shareholder approval for new share issues will ensure that those stakeholders gain a voice in the rescue process. Minor creditors may not be offered easy access in a debt to equity conversion but their interests will not usually be affected detrimentally, and they may well benefit from the reductions of debt that follow a conversion and from the reductions in the length of the potential queue for insolvency payments that will follow a conversion that changes the status of certain creditors to shareholders. For these reasons, it is also difficult to criticise conversions on the grounds that they involve unfairness to any affected parties. A company’s shareholders may suffer when a conversion takes place: Eurotunnel shareholders were diluted to 13 per cent in the 2007 restructuring deal. Such shareholders, however, take risks openly and they suffer less in a conversion than they would in a liquidation.

Conclusions

Since the mid-1990s, a new emphasis has been placed on informal responses to corporate troubles and on the taking of remedial actions at the pre-insolvency stage. Sometimes these responses centre on the

119 See C. Batchelor, ‘From Lender to Investor’, Financial Times, 23 March 1993.

monitoring of corporate performance, sometimes they focus on restructuring. New actors have come onto the scene to challenge both the former dominance of the banks and the approaches to corporate troubles that tend to be adopted by the banks. Whatever the approach to rescue – be it one that focuses on turnaround of the existing company or on restructuring the business – resort to informal action offers a number of potential gains. It avoids the constraints of formal insolvency procedures and it offers companies new opportunities to enjoy business success. Assessing the efficiency of informal rescue procedures, individually or as a group, is, however, fraught with a number of difficulties. Informal rescue ranges from crisis management and turnaround to the use of consultancy services to improve management. It is, accordingly, almost impossible to separate out rescue activity from routine negotiations with creditors and other business partners. The lack of any formal gateway rules out such identification. Nor will information on much turnaround work be readily available: publicity, after all, will often be highly counterproductive. What can be looked to is the success rate of forms of rescue work that involve certain parties. Thus, the figures of R3 reveal that in a small sample of cases where IPs were appointed, the ratio of turnaround projects that succeeded or were still in progress to turnaround projects that failed and resulted in a formal insolvency was 62:50.120

Informal action can be swifter and cheaper than formal procedures but this is not always the case and it can also be more partial and less well informed. We have seen that informality does give grounds for concern on some fronts. The expenses of informal actions may be high. The expertise being applied at key points in informal processes may not always be appropriate. The accessibility and accountability of some procedures may be low (secrecy may be treated as a virtue in some informal rescues) and whether all affected parties are dealt with fairly can be a matter of fortune.

The philosophy of rescuing companies, it should be emphasised, is very different in orientation from many aspects of formal insolvent liquidation procedures. It is less strictly guided by statutory rules and its main focus is not the maximisation of returns for the various creditors in strict order of priority. It looks towards ongoing commercial viability and involves the application of skills relevant to marketing, manufacturing, product development and general management as well as the legal

120 R3’s Ninth Survey.