“It’s an ill wind that blows nobody any good” could easily be the motto for the insolvency profession. So no wonder practitioners are rubbing their hands now that gusts are whipping in from several directions.
Brexit may be just a breeze at the moment – but it has the potential to turn into a gale. Then there are worries about slower growth in the developing world. And more protectionism in a Trumpish America. And the impact of higher interest rates or energy costs. Or unexpected sudden shocks to the world economy.
In Britain, there are said to be thousands of “zombie companies” kept afloat by the lifebelts of low interest rates, clearing banks’ willingness to reschedule loans, and HMRC’s “time to pay” programme.
“For some companies it’s been like kicking the can down the road,” says Tyrone Courtman, partner in PKF Cooper Parry, business advisers and accountants. But the question facing those companies doing the kicking is: how many more kicks before we run out of road?
So for an accountancy practice that has not previously offered insolvency or business recovery services, could this be a good time to move into the market?
New rules for old
The question comes at a time of big change for insolvency. New insolvency rules for England and Wales – 446 pages of them – came into effect in April. They attempt to drag the process out of the age of the quill pen into the digital era.
Out go lots of those printed documents such as creditors’ reports, which insolvency practitioners sent regularly by snail mail. In comes more information shared by email and through the insolvency practitioner’s website.
“This should reduce the costs of communicating with creditors,” says Tony Nygate, business restructuring partner at BDO. “However, creditors will need to sign up for alerts to advise them that reports have been published to ensure that they don’t miss information that might be of interest to them.”
Insolvency hasn’t been primarily about rules for a long time. Now it’s more about trying to save rather than kill off a business. So only knowing how to do formal insolvency is not enough for those who want to take on the most challenging assignments. They also need broader financial and business understanding and a keen sense of judgement.
It’s not about turning up at five minutes to midnight any more, argues Courtman. “But the earlier you come into an assignment the more sectoral, rather than situational, experience you may need,” he adds.
And there are changes in the way insolvency practitioners (IPs) are appointed, notes Angela Swarbrick, a restructuring partner at EY. “It mostly used to be clearing banks who appointed IPs,” she says. “Now debt is being traded and new players who buy up the debt have a right to appoint IPs – but may take a different view on a business’s long-term viability.”
Ways into the profession
If you want to become an insolvency professional, you must pass two Joint Insolvency Board exams – one for corporate and one for personal insolvency. Alternatively, you can obtain a licence for either corporate or personal insolvency and then practice exclusively in your chosen area.
But you need to know about more than just insolvency. For example, if you’re practising personal insolvency you would need to know about non-insolvency solutions such as debt arrangement schemes. There are five bodies that license IPs and before you take the exams you need to be registered with one.
One of them is ICAEW – although Bob Pinder, regional director, notes that half the IPs ICAEW licences are not chartered accountants. He also points out that, for career entrants, the Institute has introduced the ICAEW Certificate in Insolvency. “The learning is delivered live through online interactive classrooms so students no longer need to leave the office,” he says.
“This qualification also benefits those who perhaps don’t want to go on to take appointments but want a broad understanding of key insolvency principles.”
Entering the market
Pinder is bullish about there being room in the market for more insolvency and business recovery professionals. “One of the things I’m particularly keen on is making sure ICAEW positions itself to support the next generation of insolvency practitioners,” he says. “The UK is a great place to start and grow a business. A thriving economy needs insolvency practitioners to support a strong entrepreneurial culture.”
And Swarbrick notes that changes in the market suggest that new entrants have a chance to pick up business. “Historically, large insolvencies were dominated by the Big Four accountancy practices,” she says. “But now work is spread more broadly to mid-tier and smaller firms – which have been picking up higher profile assignments.”
But she warns firms that think insolvency work is a gold mine that there is pressure on fees. Too many creditors think that IPs don’t provide value for money. But cost-cutting measures in the new insolvency rules and more transparency could help IPs prove they deliver better value.
Pinder sees three routes into insolvency work for an accountancy practice that hasn’t done it before. “In the first instance, firms may decide to set up an arrangement with another ICAEW firm that has an insolvency and restructuring practice,” he says.
“Alternatively, firms could recruit an existing insolvency practitioner to develop their own service line. Firms could also grow organically by identifying a member of their staff who is interested in business recovery and sponsoring them through the examinations.”
Case in point
When mid-tier chartered accountants HW Fisher decided to launch a turnaround service called Fisher Performance Improvement in 2012, it took around 18 months to get everything in place, recalls partner David Birne.
It had to resolve a range of issues. One was whether to approach banks or company directors for work. The firm decided to approach both – and also its own clients.
Then there was the question of how to charge struggling and cash-strapped companies. The approach: to tie some of the remuneration to the savings their work delivers for the client. When it came to bringing on board the skills they needed, the firm hired from two main groups – bankers and insolvency professionals.
Adds Birne: “The key to winning clients is to build their confidence in what you can do for them. You have to become their confidante – and that requires the right personality.”
ICAEW is investigating current trends and the outlook in the insolvency profession. To give your views please visit icaew.com/insolvency