BusinessCompany NewsPwC’s insolvency strategy speaks volumes

PwC's insolvency strategy speaks volumes

PwC might ditch its personal insolvency business - what does that mean for the rest of the profession?

PWC IS LOOKING to sell off its personal insolvency division, but is the move due to a particular strategy for the firm or is its departure a signal of things to come in the market?

The Big Four firm’s decision to bow out of the personal insolvency arena has certainly intrigued industry experts who wonder if larger firms are struggling to afford, with their high fees, to stay in a generally considered high volume low margin market.

In a statement to the market Dan Schwarzmann, partner and head of business recovery, said: “PwC have come to the decision that the high calibre team will have better opportunities outside of the firm.”

Schwarzmann also confirmed PwC was looking at a number of options, including the sale of the business as a whole which operates mainly out of its Gloucester office.

Falling property prices give insolvency practitioners a headache; as it they are usually the only asset worth any value in bankruptcy cases. However, it is not just property asset values that are declining. Bankruptcy numbers have also dropped throughout 2010, with government predictions estimating they could fall further in 2011.

graph-personal-insolvencies

 

The Insolvency Service predicts bankruptcies will fall to about 50,000 in 2011 from highs of 59,000 in 2010 and nearly 74,500 in 2009.

It is also estimated that of the 59,000 bankruptcies last year, just fewer than 5,000 were passed to insolvency practitioners with the rest handled through the government’s own official receivers.

graph-personal-insolvency-statsNumber of personal insolvencies by firm

However, there may be work ahead for IPs. Many in the profession believe with upcoming public sector cuts the official receivers will be unable to take on a huge volume of bankruptcy work as it has done in the past. This could mean the government will have no choice but to pass on more work to practitioners.

Practitioners big or small need to find a way to take on high volume work at a low cost. Firms that don’t invest in providing bankruptcies at a low cost may be left with no option but to bow out of the market.

One way to achieve the low cost high volume required to stay in the field, is to pass the administrative duties to less senior personnel. The fee-earning IP can then just check the work and sign off paperwork – to keep the cost down.

However, for large firms which take on corporate insolvency cases that rack up millions of pounds in fees, it does not suit their business model to take on smaller cases with returns of around £20,000 or less.

The future of individual insolvencies looks more suited to “factories” which is able to churn through cases.

In this model the bankruptcy market could see the profession split into two sections. The firms which are able to create factories, and firms which take on complex asset-chasing cases.

It is unlikely that a firm would realistically be able to work productively in both sections.

PwC might be the first out of the low end personal insolvency sector it is certainly not the necessarily the last.

graph-iva-dro

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