INSOLVENCY PRACTITIONERS hopeful that the nascent economic recovery would breathe new life into the recovery market will have been sorely disappointed over the past year. The gloom that pervades the environment for personal and corporate insolvency appointments is Gormenghastian in its darkness. The Fields of Elysium the market is not.
Data compiled by Accountancy Age reveals that 15 of the 31 Top 50+50 firms to publish insolvency fees reported a decline – the same number as in 2014 – and raked in £567m in fees. Official figures from the Insolvency Service bear this out too. Corporate and personal insolvencies in England and Wales in the first three months of the year fell to their lowest levels since before the financial crisis, while new quarterly figures from Accountant in Bankruptcy show the lowest level of total personal insolvencies in Scotland in over 14 years.
“The whole market is challenging. There is a greater focus on value for money and the level of creditors was smaller in this recession making fees more competitive,” explains Louise Brittain, a partner and head of contentious insolvency at Wilkins Kennedy.
As a consequence restructuring and recovery specialists have had a trying time. Insolvency outfit Begbies Traynor reported a 10% fall in fees to £45.8m and posted a dramatic fall in profits earlier this year, which it blamed on fewer firms going into administration. Ric Traynor, Begbies Traynor’s executive chairman, says the firm has taken steps to “manage the cost base in its insolvency division” and has closed the loss-making global risk partners division but is confident the group is positioned to “take advantage of the cyclicality of the insolvency market”.
Smaller players have also struggled. Shipleys, the London-based firm ranked 55th in the overall Accountancy Age Top 50+50, supported by Wolters Kluwer, saw fees in its insolvency division plunge 67.6% to £0.58m and offloaded the work in progress of its corporate recovery practice to Leonard Curtis earlier this year to focus on its core business.
A combination of low interest rates and bank forbearance continues to keep ailing businesses afloat, while credit is still cheap for individuals and banks continue to cut substantial slack to those who fall behind on their debt repayments.
“The army of ‘zombie’ companies – which are essentially dead but continue to survive in suspended animation – is unlikely to ever return to rude health,” Brian Johnson, insolvency partner at HW Fisher & Company said when the Insolvency Service released its first quarter insolvency statistics.
Johnson puts the forbearance towards individuals down to the increased costs faced by creditors who push a bad debtor into bankruptcy. “It’s also down to pragmatism – in many cases creditors are choosing to get something back than nothing,” he said.
With administrations thin on the ground – down 16.9% compared to the first three months of 2014 – practitioners are providing more advisory services. Brittain says “contentious insolvency advisory” is one of the busiest areas for Wilkins Kennedy. At the same time firms have had to get “very hands on” with clients and become more “approachable and flexible” about their fee structures.
Firms are also exploring further afield in a bid to pick up more business. UHY Hacker Young – which delivered a 30% increase in fees – has been picking up business in Cyprus. Andrew Andronikou, turnaround and recovery partner at UHY, has spent the last few years working on the Mediterranean island and says the firm has picked up two of the largest insolvency appointments in the history of the island.
“We are looking at other geographic locations. Insolvency is a global issue,” he explains. “Work we get [in Cyprus] we would not get in England.”
Practitioners are also hopeful of winning more cross-border work, with around two thirds of IPs surveyed by Grant Thornton expecting the number of insolvencies involving offshore jurisdictions to increase over the next three years as a result of an uplift in activity in financial services. The Cayman Islands was pinpointed as a preferred offshore jurisdiction for having the most effective insolvency laws, followed by the British Virgin Islands and Hong Kong.
Steve Akers, recovery and reorganisation partner at Grant Thornton, comments: “With an anticipated uptick in cross-border insolvencies on the horizon, jurisdictions need to ensure their basic legal process and infrastructure is fit for purpose.
Better times may be on the horizon for the market. Reports of a manifest shift to expansion among large UK corporates will be welcome news. Deloitte’s latest quarterly survey of sentiment among chief financial officers found finance chiefs’ business strategies have edged toward expansion with the proportion of CFOs focusing on growth reaching the highest since the first quarter of 2011.
As Andronikou explains, IPs tend to be busier in periods of growth when businesses are more willing to take on risk and there is more appetite for investment among creditors. The darkness enveloping the market like that of Mervyn Peake’s gothic castle may soon be lifting, but there is some way to go before IPs can feel they have reached an environment more representative of Camelot than Gormenghast.
Brexit shows that majority of UK public have major trust issues with business and political leaders, says PwC's Kevin Ellis
Hall Livesey Brown, which has offices in Tarporley, Chester, Shrewsbury and Wrexham, has merged its practice with Colin F Whitfield & Co.
BDO has announced a worldwide technology and services collaboration with Microsoft that will accelerate the digital transformation of their clients’ businesses
Smith & Williamson has added Jim Clark and Philip Marsden, of Marsden Clark Corporate Finance Limited, to its corporate finance team.