Expect More Debt-For-Equity Deals, Expert Says

Insolvency Expert


More firms could be forced to hand equity of their businesses to banks and lenders to stop the company collapsing according to a leading insolvency expert.

Andrew Walker, a Partner at Irwin Mitchell and Vice Chairman for the Yorkshire region of R3, spoke out after the UK’s largest photographic retailer Jessops gave control of its business to HSBC in a debt-for equity deal that saved 2,000 jobs.

Unable to secure support from its suppliers, Jessops sold its assets to a new company 47 per cent owned by HSBC and 33 per cent owned by pension trustees, with the remaining 20 per cent held by an employee trust.

Andrew Walker said: "These sorts of deals are becoming more common, especially where there are large pension scheme deficits to be dealt with.

"It is not unusual for a company to have a pension scheme deficit which equals or outweighs its bank debt.

"Because the deficit and bank debt are so large, if a company can reach an agreement with these two creditors to restructure the debt then this can lead to the survival of the company as a going concern.

"With current asset values still extremely low the alternative - administration or liquidation - will result in very little return to any creditors."

He added that firms concerned about their debt levels should seek advice as quickly as possible about how best to restructure their finances, especially with the key Christmas trading period set to begin.

Andrew added: "A proactive and early approach to restructuring debt will help struggling companies gain the crucial breathing space they need to stay afloat over the Christmas period.

"It will also reduce the risk of them having to sign over a significant proportion of their business to someone else and give them a more secure foundation for the future."