The insolvency practitioner and the heart surgeon have much in common. Most people don?t plan to find themselves under their knives, but may one day thank them. Both rely on work coming to them through a stream of referrals.
But times, for the insolvency practitioner at least, are changing. Can they still rely on that referral work or will they have to start competing more actively to attract business?
Insolvency practitioners, or should we say corporate recovery specialists, find their clients in a number of ways. The traditional and still most common route is through referral by another professional. Certainly at the smaller end of the mar-ket most companies or individuals who get into financial hot water will turn first to one of their existing advisers – generally their accountant or audi-tor, or their lawyer.
?Most people are referred to insolvency practitioners by other professionals,? says Keith Steven, business development manager with the MacDonald Partnership, a firm specialising in business turnarounds. ?Most of it comes down to the old-boy network where people have built up contacts over the years. It?s who you know.?
Gerald Krasner, insolvency partner with Bartfield & Co in Leeds, agrees. ?Most chartered accountants would have a fairly loose tie-up with an insolvency practitioner, in the sense that they know the individual,? he says. ?It?s a normal professional relationship.?
System is not infallible
However, the system doesn?t always work. ?People don?t always find the right insolvency practitioner for the job,? Krasner notes. One problem may be that smaller professional firms, be they accountants or lawyers, may not have sufficiently extensive contact lists.
?A two or three-partner practice may not have the contacts within the accountancy profession to be able to choose a list of candidates for the client to consider,? says Tony Houghton, Kidsons Impey?s national director of corporate recovery.
How can the adviser gain access to a wider range of specialists? Consulting the Society of Practitioners of Insolvency, which produces a directory of its members, is one option.
The information contains the names of individual insolvency practitioners, a geographical index, and optional corporate advertisements where firms can indicate any specialisms, numbers of offices and types of assignment covered.
The SPI recently mulled over the idea of extending its database in such a way that work could be referred to members on a rota basis, but the concept has been put on hold. The SPI seems wise to do so, given the reaction of many practitioners to the suggestion.
John Alexander, Pannell Kerr Forster?s insolvency partner, is not convinced the SPI should take a proactive role in handing out assignments. ?If the SPI is thinking of being a conduit for work, offering to find members of the public a practitioner, I am not sure that is appropriate,? he says.
?If they are either giving the name of the next person on the list, or the firm that they consider most appropriate, then they are setting themselves up to be criticised by the client if he is not satisfied, or by the insolvency practitioner who didn?t get the assignment.?
David Mond, insolvency partner with Hodgsons in Manchester, is also sceptical about the worth of the SPI recommending any particular firm. ?Because the SPI is a trade association, it would be difficult to recommend anyone over someone else,? he says.
There is little objection to the SPI?s current facility for sending out lists of names of member firms in a particular area, as long as the records are kept accurately. ?The SPI should ensure the database of its members is up to date geographically, divided by specialisation if appropriate, with an indication of the size of the practice and possibly of the general level of the charge-out rates too,? Alexander says.
That way, anyone seeking to find a suitable insolvency practitioner should have enough basic data in order to select a firm for an initial consultation.
Some practitioners feel, however, that any information on specialisations should be treated with care. ?If people are invited to submit information they regard it as a means of self-promotion,? warns Houghton.
?They could write down lists of industries on the basis of the experience of one case. Insolvency practitioners are by their nature self-promoters. They would be tempted to over-expand their credentials. If a firm listed an expertise, you would have to make sure it had real expertise and not just experience of one such job.?
The SPI aside, insolvency practitioners themselves have become increasingly active in trying to attract business. The activity reflects several factors – the slowdown in traditional insolvency work due to a reasonably healthy economy, the in-vogue emphasis on the rescue culture, and the ever-present competition from unlicensed practitioners and ambulance chasers.
The more proactive approach can take a number of forms, from traditional marketing to the development of websites. ?We spend time, money and effort on genera-ting awareness,? says the MacDonald Partnership?s Steven. ?We have a significant marketing budget. We spend around 10% to 12% of our fee income on marketing.?
Some firms, such as Cooper Lancaster Brewers and Bartfield & Co, advertise in the Yellow Pages. ?We get 30 to 40 enquiries a year through that,? says Krasner. However, around 80% of enquiries triggered this way turn out to be matters for the official receiver, for example, people who are unable to pay their Barclaycard bills.
The Internet is an emerging force in the insolvency world, and one that is expected to increase in importance as a vehicle for self-promotion.
?Increasingly, people are coming to us by looking at our website on the Internet,? says PKF?s Alexander. Hodgsons also has a website, as does the MacDonald Partnership. ?Last month, we had three cases where people came to us via the Internet,? says Steven.
The creation of a website and the sensible use of a marketing budget can also help flag up to potential clients the firm?s attitude towards business rescue.
Diane Hill, insolvency manager with Cooper Lancaster Brewers, acknowledges members of her profession have laboured under some ?negative imagery?. She says: ?To some extent, we are seen as the undertakers of the accountancy and legal professions. That can put people off.? Murdoch McKillop, SPI president and corporate recovery partner at Arthur Andersen, agrees. ?We are not necessarily the people companies want to see walking through the door,? he says.
As a result, insolvency practitioners who want recovery and turnaround business need to be aware of their image and work to counter any negativity.
?People look for practitioners who are committed to the rescue culture, who will try to find a solution rather than just put them into liquidation,? says Hill. ?People also look for approachability, somebody who can understand the issues.?
This emphasis on the rescue work that insolvency practitioners can perform is important, she believes, because the sooner they are consulted, the greater the chance that a business can be saved.
Quite often, businesses have got into difficulties through inefficient management, perhaps leaving the business underfunded or with inadequate working capital.
?The crucial issue is for people to come forward early enough,? says Hill. ?There is a great deal of work that?s carried out to preserve businesses.? However, she stresses insolvency practitioners have to consider what would be in the best interests of creditors, not merely actions in the best interests of the individual or the company in question.
Whatever route people follow to find details of insolvency practitioners, Mond believes they should make sure they look for someone who will see them initially on a free-of-charge basis to find out the nature of the problem. ?They should also see a practitioner who would not, on the first instance, seek an insolvency appointment if the client didn?t want him to,? says Mond. ?That should give them more confidence that they will get unbiased advice.?
Some firms have aligned themselves so closely with rescue work that they handle no liquidations at all. The MacDonald Partnership has gradually cut out most of its other accountancy work and now concentrates on rescue.
?We have 25 people in this firm concentrating on turning businesses around,? says Steven. The firm specialises in company voluntary arrangements, where debts are generally paid off over a period between three to five years. Steven claims the firm can turn businesses around by facilitating extra funding facilities through its contacts with finance providers, improving management systems and even bringing in interim managers if need be.
Most firms do not specialise in rescue to this extent, but many are increasing the emphasis they place on rescue which in turn is increasing the value of industry specialisation. ?Industry knowledge is becoming increasingly important,? says McKillop.
?Life is getting more and more complicated. Insolvency practitioners will try, particularly with a reasonably sized business, to trade the business on and fix things before they sell it. This is all part of the rescue culture. If the business is still there, the insolvency practitioner will generally try to save it, even if he can?t save the corporate shell.?
?If he is going to do that, then it is important to understand the business.? Running the business takes more industry knowledge than it does to close businesses down, call in the auctioneer and sell off the assets, adds McKillop.
Alexander also believes specialisation is increasingly important because of the complexity of day-to-day business. Assignments in the financial services sector, for example, do need familiarity with the relevant regulations. However, he believes specialisation has its limits.
?There is an increasing tendency to specialise, and in some areas there is an increasing need, but there is also a danger that there is an over-emphasis on specialisation,? he says. ?We are insolvency practitioners with skills appropriate to that. We use the skills of others in the small number of areas which require specialist input.? He gives the example of the need for the skills of a quantity surveyor when running a business in the construction industry.
If respectable and professional insolvency practitioners are to defeat the threat posed by the unqualified ambulance chasers, they have no choice but to broadcast their message – that they have expertise in saving businesses, as well as shutting them down.
They cannot afford to be passive in the modern market. Those that can complete rescue work successfully can also look forward to the best way of finding new clients – by referral from previously satisfied customers.
THREATS FROM THE LESS THAN QUALIFIED
One of the most pressing reasons that qualified insolvency practitioners and corporate recovery specialists need to flag up their expertise is to fend off the ongoing challenge from unqualified practitioners and ambulance chasers.
Ambulance chasers have long been a pest of the qualified profession, often gaining details of financially distressed targets through published details of County Court judgements. They continue to be a cause of concern, says John Alexander, insolvency partner at Pannell Kerr Forster.
?Anyone giving unlicensed advice is a danger to the business community and a risk to the reputation of insolvency practitioners,? he says. Gerald Krasner, insolvency partner at Bartfield, points out the term ?ambulance chaser? covers a wide range of people – ?from the almost criminal to the sort that do perform a useful, if limited, service? – they are rarely qualified accountants. They are more likely to be rip-off merchants.
The bottom line is ambulance chasers can give insolvency professionals a bad name. ?They go to these distressed businesses and they sell them the idea ?Don?t worry, we will sort out your problems?,? says David Mond, insolvency partner with Hodgsons. ?They put them under a false impression. They don?t do them any service apart from ripping them off for fees. Basically they are asset strippers.? Diane Hill, insolvency manager at Cooper Lancaster Brewers, has also come across the victims of ambulance chasers. ?It?s unfortunate when people already in financial difficulties are preyed upon,? she says. ?Sometimes we find they have paid a fee and nothing has come out of it. Then they come to us to sort the mess out. They have spent money that would have otherwise been there for creditors.?
Sarah Perrin is a freelance journalist
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