Providing assistance to companies in distress- the Danish approach

September 25, 2014

Caitriona Morgan, Associate solicitor recently attended an event in the MAC, “Spotlight on SMEs”. The event was jointly hosted by the Federation of Small Businesses and the University of Ulster Business School. The key note speaker was Mr Søren Boutrup from the Danish Ministry of Business and Growth. Mr Boutrup provided a fascinating insight into how the Danish government has over the past 7 years provided assistance, support and advice to distressed companies through the introduction of the “Early Warning” programme (“the Programme”).

The Programme was introduced in 2007, coincidentally at a time when the Danish economy was, like many other economies, beginning to experience the onset of the recession. The main purpose behind the Programme is to assist companies, and to prevent them from entering the Danish legal system where the only options are legal reconstruction or failure.

Each region in Denmark is allocated a certain number of consultants and volunteers who facilitate the Programme. These volunteers have a wide range of experience and knowledge in all industry sectors including banking, business and legal. Mr Boutrup explained that when approached by a company in distress, the volunteers complete a review of the company and aim to give them 1 of 3 options, described by Mr Boutup as being similar to those of “going Home, to the Hospice or to Hospital”:-

  1. Advising on a specific issue which has given the company concern, but does not mean the company is in financial difficulty (Home);
  2. Advising the company to cease trading (Hospice); or
  3. Helping “fix” the company, facilitate growth and encourage restructuring (Hospital)

Since its inception over 3500 companies have benefited from the Programme’s assistance and it has helped save around two thirds of these companies. The average cost to the Danish government in assisting each company is circa €1500.

It will be interesting to see whether any other European Countries, including Northern Ireland, adopt a similar approach to assisting distressed companies in the future having learnt valuable lessons following the recession. In NI, the number of company insolvencies has fluctuated over the past few years. Figures available from the Insolvency Service1 show that company liquidations in NI for the quarter January to March 2014 increased by 32.7% from the same quarter in 2013, from 55 to 73. During the second quarter April 2014 to June 2014 there were 28.6% less company liquidations in NI compared to the same quarter in 2013, from 105 to 75. It is important to note that Q2 2013 showed a spike in company liquidations therefore the reduction in the same quarter in 2014 does not necessarily reflect an adjusted reduction in the overall number of liquidations. The reality is there will always be companies facing difficulties, even in periods of boom and economic stability.

During a time when budgets are being cut the question to be asked is whether it would be economically beneficial for the government to make such a similar investment in NI? If this front line specialist advice was available it may encourage NI companies to address difficulties sooner rather than later, and avoid insolvency altogether. The knock on effect of this could mean higher employment rates, greater consumer spending, less reliance on benefits and better business development and economic prospects. Ultimately the success of any such programme would depend on the quality of the volunteers that are prepared to give up their time and experience to advise the distressed companies.

The economic arguments for and against such a programme, and how such a programme would sit alongside current government bodies and schemes designed to assist SMEs in NI are outside the scope of this article, but certainly provide food for thought.

Should you have any queries about the contents of this article, please do not hesitate to contact

Caitriona Morgan, Associate, Cleaver Fulton Rankin on 028 9027 3141


 

¹ https://www.gov.uk/government/statistics/insolvency-statistics-april-to-june-2014