Insolvency boom failing to prop-up firms
Insolvency arms across the UK are working flat out, but the statistics show
that, while activity is high for some firms, it can’t make up for the overall
slump in accountancy work.
The figures show that the increased activity can’t make up for the shortfall
in fees after work has almost ground to a halt in traditional cash cows such as
corporate finance. A significant number of firms have shown negative growth
despite increasing fees from insolvency work.
Outside the Big Four, only a handful of firms disclosed making more than £10m
from insolvency fees. The fact is not all firms have hundreds of people they can
redeploy from other quieter parts of the company to provide supply for the
But you don’t need numbers to realise how much work the Big Four and the
chasing pack are taking on.
Of the Big Four, only KPMG provided breakdowns of business recovery revenues,
showing £107m in fees – a 5% increase year-on-year. The firm is also handling
JJB’s high-profile company voluntary arrangement.
The Lehman Brothers dreadnought rolls on for PricewaterhouseCoopers in
addition to work at Dairy Farmers of Britain and van maker LDV.
There are also lucrative government contracts to value nationalised banks.
BDO Stoy Hayward is raking in £4.5m for the valuation of Northern rock and an
even bigger fee will go to the winner of the Bradford & Bingley valuation.
Mazars is one of the mid-tier firms that has capitalised on the insolvency
demand with a 23% increase in fees for its forensic and insolvency service line.
Rod Weston, the firm’s head of recovery and reorganisation services, says:
‘The growth comes from the investment we’ve made in recent years to position
ourselves properly. We’ve been punching below our weight for long enough and now
we’re taking on people to grow the business.’
Tenon boosted its results with a very impressive 62% growth in its insolvency
revenues, to £30.9m.
But insolvency experts are tightening their belts along with everyone else.
One IP says the volume of corruption taking place also means that lower fees
were commanded because ‘companies just couldn’t pay out the standard rate after
taking a bath on a fraud.’
Another senior insolvency practitioner says his firm has made no money from
its bankruptcy division this year when in the past it had been profitable. ‘It’s
like pulling the rug out from under the bankruptcy trustee as it is now a
lottery as to how much you’ll get back,’ he says.
Pat Boyden, personal insolvency partner at PwC, says: ‘The average dividend
has fallen for individual voluntary arrangements and bankruptcies. About nine
out of ten bankruptcies ‘won’t even gain 1p in the pound for creditors, so it is
a difficult market for insolvency practitioners.’
Tax take fails to buoy-up firms
For those hoping tax might buoy-up their firms in what has clearly been a
difficult year, think again. Tax departments have, for the most part, suffered
with growth rates falling in many firms.
Of the 33 top 50 firms that gave us comparable figures for tax revenues, 27
have seen the growth rate in tax drop off. Seven saw growth slow, but still
reported good results (above 10%) while only six firms saw growth rates increase
on the previous years.
Of the Big Four, three have seen growth rates drop. Meanwhile, BDO Stoy
Hayward posted a hike of 28.7% to £107.4m, an improvement on the 25% growth in
the previous year. Grant Thornton saw growth of 17.73%.
BDO’s result is largely explained by the takeover of Chiltern, but there was
still around 15% of organic growth, with a large portion of that driven by
strategic changes to target transfer pricing and employer tax issues.
Paul Eagland, head of tax and audit at BDO, says: ‘Behind each credit crunch
headline is a government that will have to do what it can to balance the books
and that means taking its fair share of tax.’
Another notable success was Buzzacott, this year’s number 28 firm, with
growth of a little more than 18% compared to 19.5% last year.
Price Bailey, in at number 38, saw a 14% uplift – well down on last year’s
38%, but still steady given the current environment. Charles Olley, head of tax,
said the firm’s continued growth comes on the back of restructuring at the end
of 2006 which saw corporate tax move to consulting and personal tax become part
of its private client offering.
The big kick, he says, was when they ‘found margins in private clients were
well up’. He adds: ‘That came from working in a joined-up way rather than as a
discrete tax service.’
Sir Michael Snyder, senior partner at Kingston Smith, said his firm’s 16.77%
rise was down to investment in staff to expand the tax offering. ‘We felt that
our percentage of total fees from tax was lower than it could be.’ He says most
of the increase has come from corporate tax, while some is in personal.
But you can cut the data another way. Of the 33 top 50 firms we have figures
for, 12 saw double-digit growth – an impressive achievement in the current
climate. But 16 (43%) saw growth of less than 5%. A quarter of those saw flat or
negative growth. Chantrey Vellacott, Cooper Parry and Littlejohn saw no growth
at all, while DTE saw shrinkage of 8.3%.
Unless you invest – or restructured like Price Bailey, Kingston Smith and BDO
– it was a very difficult year to improve on growth rates.