Bottom falls out of bankruptcy market

Insolvency practitioners have seen their profits slashed from handling
personal bankruptcies even as the number of people becoming insolvent has
climbed.

The dramatic fall in income has seen at least one bankruptcy unit in a Big
Four firm closed, with the redeployment of staff, while experts claim that there
may be little incentive for insolvency practitioners to continue dealing with
personal bankruptcies.

KPMG has closed down its
bankruptcy division in Gatwick and redeployed staff to its Bristol, Stoke and
Southampton offices.

Richard Hill, head of bankruptcy at the firm, said: ‘KPMG has suffered a
downturn in the volume of work [bankruptcy], and I took the decision in January
to reallocate those cases.’

The reversal has been caused by the collapse in the housing market, leaving
most bankrupts without a high value asset to pay creditors and bankruptcy
trustees.

Joanne Wright, personal insolvency partner at
Begbies Traynor,
said the firm would once have taken on cases with around £10,000 in equity in a
property, but that benchmark has risen substantially to around £40,000.

The Insolvency
Service announced in their Q1 figures this year that personal bankruptcies
had increased by 23.4%, compared to the same period in 2008, to a total of
19,062.

One senior insolvency practitioner told Accountancy Age his firm has
made no money from its bankruptcy division this year. He said bankruptcy
specialists taking on cases were entering a ‘lottery’ over how much money they
would recover.

Pat Boyden, personal insolvency partner at
PricewaterhouseCoopers,
said: ‘The average dividend has fallen for individual voluntary arrangements and
bankruptcies.’

He predicts nine out of ten bankruptcies ‘won’t even gain 1p in the £1 for
creditors’.

Even though it would involve working at a loss, five firms scrambled to win a
major credit card contract for being trustee in bankruptcies or IVAs. The tough
competition came because the contract will leave the winner well-placed for an
upturn in the economy.

Smith and
Williamson insolvency partner Neil Hickling said, although there is more
work, there is less money to be made. ‘Our division was taking 20 bankruptcy
cases a month and now we are taking about two’ he added. ‘We are turning away
jobs that will make us break even or work at a loss’ he continued.

To combat the falling revenues in the service lines, Smith & Williamson
redeployed members of the bankruptcy team to corporate work.

Joanne Wright said IPs are now having to take time out to think about the
assets before deciding whether or not to take on a case. ‘IPs now have to take a
considered choice in terms of the cases,’ she said.