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The Lowdown: They will survive: troubled companies turn to man who isn't bankrupt of ideas

Britain's insolvency chief talks to Jason Nissé about the coming of a corporate rescue culture

Sunday 01 June 2003 00:00 BST
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Today John Verrill is in Malaga, chairing R3's annual conference. But the president of the curiously named insolvency practitioners' trade body shouldn't be there at all. The senior insolvency partner at City firm Lawrence Graham should really be an oil and gas lawyer at a big US firm. "I stumbled into my niche," he admits.

On first meeting, Verrill seems a classic City lawyer - well spoken, pinstriped, flecks of grey in his black hair. But within a few minutes you detect a self-effacement and an iconoclasm that have served him well in the tight-knit community of liquidators and debt collectors.

"It's unusual for a lawyer to be representing what is seen as a body for bean counters," he laughs, although R3 is a bit more than that now. It recently admitted surveyors into its ranks, and barristers will soon be allowed to join. "We want to create a Mandelson-style big tent where all the people who add value to the process can be represented. We don't yet include debtors - they're the patients."

This sense of humour should set him in good stead as the small world of insolvency (there are only about 1,800 professionals in the business) is going through big changes. Not only is there a new Enterprise Act that will transform both corporate and personal insolvency, there are massive battles to be fought with high-street banks and US financiers.

Verrill, a self-proclaimed non-academic ("I kept having disagreements with examiners and they kept winning") arrived in the City in 1982, having trained at a small firm in Basingstoke. He joined the US practice White & Case to do energy law. However, it merged with Lawrence Graham and the new firm needed someone to do insolvency. The senior partner spotted that Verrill had sent out hundreds of debt-collection notices at his old firm, and decided he was the right man to grapple with a new Insolvency Act.

Within a few years, Verrill was considered one of the City's insolvency experts. When financial giant British & Commonwealth collapsed in 1990, he was asked to advise the directors on their dealings with the administrators. A few months later he was given a similar job at Polly Peck. "I was launched almost by accident into these high-profile cases," he claims.

Recently he hit the headlines after being drafted in to try to sort out the mess after Carlton and Granada put ITV Digital into administration. But Verrill doesn't count any of these as his most intriguing case. "That was advising the creditor of a [Conservative] MP when the Tories were in power with a majority of only one. When I explained the implications of us issuing a bankruptcy order, we got paid."

This sort of brinkmanship probably won't wash with Trade and Industry Secretary Patricia Hewitt, who R3 has been liaising with about the new Enterprise Act.

The Act, which comes into force this month, will get rid of the old-style receivership giving a bank "step-in rights" to appoint a receiver to do its bidding when a company goes bust. Instead, "fast track" administration should allow a company to re-emerge within a year.

Verrill thinks this is a big move forward: "We've been talking about the rescue culture for more than 10 years. The Government has at last embraced it."

As he explains, the world has changed, with many more companies asking insolvency experts to help them restructure their debts while they remain solvent. "Unless you suffer a disaster and fall off a cliff, companies drift into insolvency. At that point, directors lose their reputation and could be disqualified, while banks lose the enterprise value attached to a solvent company. The consequence of hitting insolvency is so great that there is an incentive to avoid it at all costs."

According to Verrill, everyone realises this now. And the proof is the success of debt deals stuck by troubled companies. "Marconi would have definitely been in administration 10 years ago. It would have gone the same way as British & Commonwealth or Polly Peck."

Another reform hasn't been so well received. The Act allows "good" bankrupts to emerge from bankruptcy after one year, rather than the current three, and Verrill is concerned about how you define "good" and "bad". "Most bankrupts are not bad people. We don't jail bankrupts any more. Most people are feckless or suffer misfortune along the way. They don't set out to defraud people. This is verging on a judgement of Solomon."

Verrill has another couple of wars on his hands. One is the result of a legal judgment by the Privy Council two years ago in a New Zealand case called Brumark. Essentially, this weakens the position of banks in a liquidation, and not surprisingly, the banks aren't keen to adhere to the ruling. "Insolvency is like one of those tiers of champagne glasses you fill from a bottle. If your bottle only fills six glasses, those at the bottom will go unfilled."

However, the banks are unwilling to allow the situation to be tested in a case, probably because they know they will lose. And they are putting pressure on the liquidators, who end up as piggy in the middle. "There's been no responsible initiative from the banks," Verrill argues.

The other battle concerns the encroachment of the US bankruptcy code's Chapter 11, which is similar to administration in the UK but gives far more powers to the debtors running the company. Most UK groups of a decent size have access to US capital markets, and Verrill believes courts in New York are too happy to make bankruptcy orders under Chapter 11. "US bond investors view the UK as the 51st state," he says. They want to use Chapter 11 as the preferred way of sorting out insolvent companies.

"It is a flawed procedure. The shortest book in the world is 'A history of successful Chapter 11s'. It's a horse-trading process. It's an over-lawyered process."

At least, though, he has had the last word in one fight. He met his second wife, also an insolvency lawyer, at an R3 conference. But their paths had crossed before at a "crammer" after he had to retake his A-levels. So his old examiners should take note: Verrill is still battling, and these days he wins more often.

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