“Maybe it’s right to let the weak go to the wall.” That’s what Ric Traynor thinks should happen to debt-ravaged companies, many of which now only survive because of taxpayer-backed life support.
Traynor is the Executive Chairman and Founder of Begbies Traynor, one of the UK’s largest small business insolvency firms in trouble.
Cynics could argue that he would want ‘weak’ companies to go bankrupt, as this will result in significantly more sales for his £ 121m company listed on the junior AIM stock market. But there aren’t many bosses from publicly traded companies who have wanted to make politically controversial comments during the Covid pandemic.
And at age 60, Traynor has been around long enough – a bankruptcy firm through several booms and busts – to know what he’s talking about.
Entrepreneur: Traynor set up his own insolvency agency at the age of 29
“The last recession [in the aftermath of the 2009 financial crisis] was suppressed by very low interest rates and support from creditors, “he says. “Some of this was encouraged by the government, and some of it was driven by lenders’ self-interest.”
But, says Traynor, that support led to the creation of what he calls “ zombie ” companies – companies that have been allowed to tinker over the past decade by paying very low interest rates on massive debt, with no money available for expansion and growth.
It’s those companies – many of which are still living off the taxpayer-funded leave plan and state-backed loans – that Traynor wants to see disappear.
His key point is that if those weaker companies “go to the wall,” as he says, stronger rivals will take over their market share.
Yes, jobs would be lost in the short term, but eventually the better-capitalized competitor will eventually employ more people than the ‘zombie’ would have.
“Americans are much more red-blooded about how their capitalist economy works,” said Traynor. That means they are going into deeper recessions, but are growing back faster. The new shoots come faster and will grow more effectively. ‘
As Traynor knows all too well, Chancellor Rishi Sunak will find it extremely difficult to withdraw taxpayers’ support from companies that don’t deserve to survive, leaving it in place for those he wants to see survive and grow the economy.
Traynor’s solution is much longer term.
“To reduce the number of companies that fail, [we need] a better education system for people starting up a business, which we don’t have in this country, ”he says.
“Anyone can start and leave a company without knowledge of employment law. A basic understanding would help considerably.
“Most people don’t have a business plan and haven’t documented anything that has shown a thought process as to why the company exists and what the future holds for it.”
That kind of training and guidance from business owners would make a big difference and lead to fewer insolvencies, he adds.
Ric Traynor, 60: one of the train gang
Lives: South Manchester.
Family: married with three children.
Great British Railway Journeys television program hosted by Michael Portillo
Education: A dentist’s son, he went to high school in Thorne, ten miles from Doncaster. Spent his gap years in a brickworks and foundry and then went to the University of Birmingham.
Hobbies: going to the gym, walking, reading and documentaries and crime dramas. Recent favorites include Great Continental Railway Journeys and Great British Railway Journeys, hosted by Michael Portillo above on BBC Two.
Traynor is not your typical submissive city banker. During his gap between school and university, he worked as a bricklayer on a construction site. He then qualified as an accountant at Arthur Andersen’s Manchester office in 1984.
Five years later, at the tender age of 29, he hit the ground running and founded Traynor & Co, an accounting firm specializing in insolvency and restructuring.
Dealing with companies in difficulty appealed to the Yorkshireman more than standard accountancy work. Ultimately, his company merged with London-based Begbies and floated on the AIM market in 2004.
For Traynor, the recession in the early 1990s was worse than the effects of 2009 due to much less state aid, but the country subsequently experienced massive growth in the mid-1990s. Growth since the financial crisis has been slow, accompanied by an increase in asset prices but also inequality, leading to populism in politics.
Traynor says, “Short term [allowing zombie companies to fail] means more bankruptcies.
“Look, I’m not saying this to get more work, since we’re busy enough anyway, and in the short run it will lead to more unemployment and that is clearly a head that politicians don’t like.
“But probably in the medium term [allowing zombie companies to fail] is the right thing to do. So will this recession be worse than in 2009, when there were 26,000 bankruptcies?
The entrepreneur does not care about details. So far, he believes that the government has stabilized the economy reasonably well.
“All they could do was throw money in it,” he says.
“In March, no one knew how the pandemic would affect the economy, so a general solution of the loans and leave arrangements was probably the way to go.”
Retail, hospitality and aviation companies are most affected by business pain as a result of the Covid-19 crisis. But Traynor is now equally concerned about the UK engineering and manufacturing industry, especially suppliers to the car manufacturers in Europe.
Failure of the ‘weak’ in so many sectors would cause more problems than it would solve?
“Ultimately, it is better for the economy in the longer term that companies survive and grow,” Traynor acknowledges.
“Nobody likes unemployment, so there must be a good structure to provide for people while they change jobs.
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