PracticeConsultingTrigger-happy or corporate saviours?

Trigger-happy or corporate saviours?

Investigating accountants are accused of taking a scavenger approach to advising troubled companies, writes Chris Quick.

Rather than ‘corporate doctors’ giving businesses a helping hand through hard times, accountancy firms are coming under fire for being the grim reapers of the business world. A number of big-name firms stand accused of forcing viable companies into liquidation so they can gorge themselves on the fat receivership fees that result.

Prime minister Tony Blair has been asked to intervene, and the issue has been discussed in both houses of parliament. It has also been the subject of a recent English ICA disciplinary investigation into Grant Thornton.

The problem, according to a vocal band of disenchanted entrepreneurs and pressure groups behind the accusations, arises when the same firm of accountants is sent in by a creditor – usually a bank – to investigate a troubled company, and the same firm is then appointed as that company’s receiver.

During the course of its investigation, critics argue, the accountancy firm is so tempted by administration fees that they recommend receivership, even when a company could survive: insolvency accountants, according to those same detractors, are unnecessarily consigning companies to the scrapheap and staff to the dole queue.

Last month, Tory MP Richard Page introduced a Bill in parliament calling for the law to be changed to prevent investigating accountants being appointed as receivers of the same company.

It was opposed by the government, which said the proposal could result in banks being less willing to lend money, a consequence that would prove even more damaging to businesses.

But many commentators – both inside and outside the profession – feel that the current pressure on accountants to be seen as whiter than white means the introduction of such a rule is inevitable. The only uncertainty, they say, is whether the rule will be forced on the profession or introduced voluntarily.

Any rule change, however, will come too late to satisfy disenchanted businessmen, who say their companies were unnecessarily forced out of business by ‘trigger-happy’ investigating accountants.

These disenchanted entrepreneurs are particularly critical of what, they say, is the cosy relationship between banks and investigating accountants.

Among them is Jeffrey Lampert, chairman of housewares distributor Heritage plc, which went into receivership in 1996. He claims the company could have been saved and says Grant Thornton and Lloyds Bank worked together to put the company into receivership.

He accuses Grant Thornton of recommending receivership when the company could have survived.

‘I think the relationship between banks and accountants is entirely incestuous,’ says Lampert, who points to the substantial receivership fees earned by Grant Thornton from its involvement in the Heritage affair as evidence of the damage this close relationship can cause.

Lampert has laid his complaints against the firm with the English ICA.

All have been vigorously denied by Grant Thornton, which points out that Lampert has pursued a case against Lloyds through the courts without success.

Eddy Weatherill, chief executive of the Independent Banking Advisory Service, says the Heritage case is just one of many that it has dealt with. ‘We have seen a lot of businesses where it would have been better to go about things in another way,’ he says.

‘Receivership was not the only option in many cases.

We believe that receivership is often seen as the easy option,’ he adds.

Weatherill has written an open letter to Tony Blair on the issue. ‘If you seriously want to support business success, then this rather sordid area requires urgent corrective action,’ he has told the prime minister.

‘The opportunistic plundering of businesses’ assets must be brought to a halt.’ Blair has not yet responded.

The rule change is also supported by Sam Crabb, an ex-Lloyds bank manager and now an independent banking consultant.

He says the current situation is a ‘licence for insolvency accountants to print money and open to too much abuse’.

Crabb adds: ‘What we are seeing far too often is the investigating accountant seeing an opportunity to act as receiver. If the functions were to be separated, we may see investigating accountants being welcomed rather than being seen as the angel of death by the companies concerned.’

Accountants and banks firmly deny the allegations being made against them.

The Society of Practitioners of Insolvency argues that less than a third of investigating accountants are subsequently appointed as receivers, while British Bankers Association director John Thirlwell recently slammed the suggestion that investigating accountants are ‘trigger-happy’ as a myth.

The BBA carried out a survey last month which indicated that in seven out of ten cases, investigating accountants did not recommend the appointment of receivers.

The SIP and the BBA argue there is no need for a ban of the sort proposed, and indeed that it is often beneficial for the investigating accountant to act as receiver.

The investigating accountant will know more about the company than a new accountant, they say, who will have to get to grips with the business from scratch.

The knowledge the investigating accountant has, according to both groups, often means that a better price can be obtained for the business or its assets because the process can be carried out more quickly.

Legitimacy must be assured

The view of the profession is not a unified one, however. Tony Houghton, national director of corporate recovery at Kidsons Impey, supports Page’s proposals because he feels there is an increasing need for the profession to be seen as impartial by the man in the street.

‘The way the profession is going, in terms of visibility, transparency and regulation, it is a foregone conclusion that there will be a division of responsibility between investigating accountants and receivers,’ he says.

Houghton discounts the argument that investigating accountants make better receivers because they know more about the business as a ‘small price to pay’ for greater transparency. He says investigating accountants making their papers available to receivers would reduce the seriousness of any problem arising.

Even Houghton rejects the allegations that accountants are trigger-happy and unnecessarily recommend receivership. David Turnbull, chief executive of the UK 200 Group, whose members – small and medium-sized firms – work closely with banks and struggling businesses also dismisses the notion. ‘I don’t think in the main they are trigger-happy,’ he says.

Any future change in insolvency procedures could also depend on the attitude of the banks, many of which continue to appoint the same accountants as both investigator and receiver.

A Lloyds spokeswoman said the bank followed this policy because the accountants in question had already met the directors of the company and were more likely to be able to make a rapid sale of the company.

Again, though, views are far from uniform. The Royal Bank of Scotland says it has a deliberate policy of using different accountants as investigators and receivers, and that fewer receiverships result.

With banks and accountants divided – in many cases with each other as well as among themselves – the suggestion that the current arrangements need to be changed is gathering support.

The English ICA has commissioned researchers at Lancaster University to determine whether using the same accountant as investigator and receiver affects a given company’s chance of survival. Those results are expected this summer.

It is not yet clear how the government or the profession will react.

But it seems likely that this will be one of the first issues to be grappled with by the proposed Insolvency Practices Council, which the government is hoping will bring more openness to the insolvency profession.

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