By Pen Kent, Director for Finance and Industry of Bank of England
Pen Kent, the Bank's Director for Finance and Industry, explains the voluntary, collective approach, adopted by banks in the United Kingdom, when faced with a company in financial difficulty. The 'London Approach' is designed to ensure that decisions about whether to call in receivers on the one hand or to organise a 'workout', or company support operation on the other, are orderly and well-founded. Its purpose is essentially to help the financial community preserve value. Pen Kent paints an encouraging picture of its application during the past three years which has allowed many businesses to survive which might otherwise have been wholly or partially closed. However, he argues that there is no room for complacency. Recent experience has highlighted a number of possible improvements which could make future support operations easier to manage successfully. Among the issues he addresses are the problems of achieving unanimous support from a large and diverse group of banks: the importance of establishing sound and informed relationships between borrowers and lenders; the need to consider, and where possible include, bondholders, shareholders and other non-bank creditors in discussion about a company'sfuture; and the importance of minimising costs, at a time when a company's cash resources are often already in short supply. In his conclusions, Pen Kent outlines an 'agenda for action' through which he seeks to ensure that the lessons of past experience are learned and the problems of tomorrow anticipated today.