High Recoveries, Revived Businesses

Good news stories for Insolvency Practitioners can be rare, says Suki Bains, Licensed Insolvency Practitioner and appointment taker at Ensors, but a recent case saw distributions to unsecured creditors of nearly 80p in the £… 

A recent case involving a licensed energy supplier, saw us make a positive return to the company’s creditors – and an especially positive one to those whose claims were unsecured.

The business itself primarily focused on the domestic gas supply market, but relied on hedges as it did not have its own generating capacity. When its gas supplier became insolvent and exited the wholesale market at short notice, the hedges were not transferred to the Company.

Without an alternative supplier, the Company would have been forced to sell at a considerable loss as the energy price cap was considerably below wholesale gas prices, so it was necessary for a Supplier of Last Resort to be appointed by Ofgem to take on the Company’s customers.

Both the company and its supplier soon entered Administration and, while the supplier had a significant claim against the Company for gas supplied, but not yet paid for, we felt that our client had a larger counterclaim against its supplier for the losses caused by its breach of the hedging contracts. We calculated that this counterclaim was worth over £10 million, after working with the Company’s Directors.

When the matter came before the Court, the supplier’s claim was reduced by almost £1.2 million from their original proof of debt.

The result?  An improved outcome for creditors as a whole by around 22p in the pound, compared to the money they would have received if the total sum had been admitted in full (less our client’s capped claim) and a total repayment of 79.91p in the pound to the company’s unsecured creditors.

Early action, greater options  

This client is one example of a business that became insolvent through no fault of its own. Many companies in the UK continue to find themselves under pressure after years of surviving economic challenges, and I don’t think anyone would dispute that it’s getting harder for them to manage their cash flow as a result of a range of external issues.

Businesses have had to cut costs since the pandemic, and since it ended, they have had to contend with creditor pressure, Covid debt repayments, rising prices and tariffs, and increases in taxes and employment costs.  

All these issues are, I’m sure, the reason we’ve seen an increase in insolvency enquiries this year. Many of these have come from good, viable businesses that are struggling to dig themselves out of the hole they find themselves in – a hole that wouldn’t have existed back in 2019.

When directors and financial advisors engage with us at the early stages of financial difficulty, we are able to assist by identifying capital investment and restructuring opportunities, and by collaborating with our Corporate Finance team to assess potential sale options for the business.

Where there is a viable business, approaching us, speaking to lenders, or identifying alternative rescue options as early as possible increases the chance of survival – the outcome everyone around the table wants to achieve.