Flybe, InterServe, Jackals, Vultures and BEIS progress on Insolvency Laws

This blog gives you the latest topical news plus some informal comments on them from ShareSoc’s directors and other contributors. These are the personal comments of the authors and not necessarily the considered views of ShareSoc. The writers may hold shares in the companies mentioned. You can add your own comments on the blog posts, but note that ShareSoc reserves the right to remove or edit comments where they are inappropriate or defamatory.

Flybe is another example of the problems of the insolvency system not working very well. @LucyGJWhite explains it well in today’s Daily Mail https://www.dailymail.co.uk/money/markets/article-6671393/Investor-anger-cut-price-Flybe-takeover.html which quotes me.

It is shocking that the directors rejected a merger deal at 40p and now are recommending a 1p deal – they should be ashamed.

The UK Shareholders Association/ShareSoc wrote a very good response to the BEIS Consultation on Insolvency and Corporate Governance https://www.gov.uk/government/consultations/insolvency-and-corporate-governance.

Click here for our response https://www.sharesoc.org/wp-content/uploads/2018/06/BEIS-Consultation-on-Insolvency-and-corporate-Governance-joint-UKSA-ShareSoc-response1.pdf.

We made the very important point:

In the US, Chapter 11 seems to work well in some cases and companies continue to trade and emerge after a period back into normal operations. The UK environment seems to favour either a pre-pack, a quick trade sale or an insolvency. All of the UK options are very painful to one or more groups, with the exception of the Insolvency Practitioners.

The government response (Aug 2018) has been positive but the dreadful Brexit shambles seem to have delayed its implementation. MPs should be ashamed of themselves and get back to governing the country. Better still, they should be fired en masse and we should elect a better lot in May 2022.

Jackals and Vultures

Once word gets out of potential cash flow problems (real or perceived), your customers stop paying their bills and your suppliers demand payment of all outstanding invoices before making further supplies. The cash flow impact is enormous.

Directors should be aware of this risk. The boilerplate text in the annual report always highlights this issue.

In these situations the niceties of business politeness get lost and sharp clever people look for ways to extract value.

Companies very rarely recover when they join the 90% club.

Interserve is another case in point. It looks like existing shareholders will now suffer 97.5% dilution.

Cliff Weight

Director, ShareSoc

One comment
  1. rogerwlawson says:

    You’re right – the vultures start circulating as soon as financial difficulties are mentioned (and I include insolvency practitioners in that). The US system seems to be much better at preserving businesses as going concerns.

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