Archive for year: 2021

Recognising the pace of regulatory developments within insolvency amidst a global pandemic and lockdown restrictions, researchers at the University of Glasgow and Insolvency Support Services teamed up to conduct survey-based research across the UK-wide insolvency profession. Our first survey, issued in December 2020, focused upon specific corporate insolvency policy areas and the effects of COVID-19 on business. Our second survey explores issues relating to the insolvency profession, including career and practice management.

Amongst our most significant results from survey one, respondents anticipate that several factors are likely to trigger a rise in corporate insolvency case numbers this year. These include the phasing out of the furlough scheme; continuation of COVID-19 restrictions; repayment demands for deferred VAT, CBILS and BBLs; removal of restrictions on the use of statutory demands and winding-up petitions; and even business leaders’ exhaustion (Figure 1).

According to global World Bank rankings, the UK corporate insolvency regime is currently ranked 14^th. Although World Bank rankings are derived from a hypothetical case study, they do take into consideration the potential for rehabilitation and rescue options for distressed but essentially viable businesses. Of particular interest here, 64% of respondents in survey one consider that prospects for rescue within formal insolvency will decrease because of HMRC’s return to preferential status and further, only 1% of respondents believe HMRC is fully prepared for the increased level of engagement with the insolvency profession that is expected from being a preferential creditor (Figure 2). Together with the wide range of likely triggers identified by our survey results, the effects of COVID-19 will test the UK framework in real terms, and in particular, its ability to rescue businesses.

With activity levels for insolvency professionals likely to increase in the short term, the profession will have to manage this increased and challenging workload alongside their own practice management issues. How well the insolvency profession manages creditor and public expectations will have an impact on the reputation and degree of trust in the profession. ‘Remote’ or ‘home’ working has become the norm for many of us, but without the necessary research and planning typically attached to such significant organisational change. Anecdotal and media sources suggest that some form of home-working and/or flexible working practices may persist into the future. Recognising the anticipated rise in workload and increased professional scrutiny, our second survey explores some of the key issues surrounding practice management, including staff resourcing and recruitment, technological resources, adaptability, and potential threats to the profession.

According to the latest statistics published by the Insolvency Service, there are just over 1,500 IPs in the UK, now licensed and authorised by four RPBs. The precise size of the wider insolvency profession is unknown, but statistics published by R3 in 2013-14 suggest around 12,000 people work in the profession. Although a relatively small profession, the regulation of insolvency practitioners continues to attract considerable political attention. Governmental regulatory review of the profession is underway, including the potential for a single insolvency regulator. The need to capture the opinions of the insolvency profession at this time is arguably critical. According to our survey one results, just under half of respondents (49%) support a single regulator, 34% do not and 16% either don’t know or have no opinion (Figure 3). We also find that of respondents in favour of a single regulator, 50% would prefer a new entity to be established.

Our survey one respondent profile also confirms some measures of ‘heterogeneity’ within the insolvency profession, in terms of the size and type of organisation where insolvency professionals work. 67% of respondents work within specialist insolvency and restructuring firms and accounting practices (or professional services firms), but we also find significant numbers working in law practices, within academia and at the professional or regulatory bodies. In survey two, we explore this diversity further by considering how lockdown restrictions have impacted upon individual working practices (recognising the differential impacts of lockdown upon those with caring responsibilities and therefore potentially across gender and age categories, as well as across size and type of workplace setting) and career management across what appears to be a diverse and evolving profession.

Please take a few minutes to complete our second questionnaire. We look forward to sharing the results of this with you and an updated commentary on the results of our first survey in the Summer edition of R3’s  RECOVERY Magazine.

Yvonne Joyce BA (Hons), CA is Senior Lecturer in Accountancy at the University of Glasgow

This article first appeared in the April 2021 edition of RECOVERY News online and is reproduced with the permission of R3 and GTI Media.

The insolvency profession faces almost constant regulatory and statutory change. Present times appear no different, with the return of HMRC to preferential status, potential for a single regulator, forthcoming Pre-Pack Regulations and a new Code of Ethics. Coupled with a global pandemic, Brexit and the ensuing increased demand for professional services and heightened media attention, the insolvency profession is working in eventful times.

Against this backdrop, the University of Glasgow and Insolvency Support Services conducted part one of a two-part survey among a representative sample of the insolvency profession.

Read the full research report, with all the findings and our commentary.

Summary of Key Research Results

Corporate Insolvencies

• The top two triggers for a predicted rise in corporate insolvencies are the phasing out of the furlough scheme and the continuation of COVID-19 restrictions, with 94% and 86% of respondents respectively selecting these factors as likely or very likely.
• Around four in five respondents believe a repayment demand for deferred VAT is likely or very likely to act as a trigger for a rise in corporate insolvencies.
• The two sectors most badly affected by the pandemic so far are hospitality & leisure and retail, with 90% and 64% of respondents respectively identifying these sectors. Overall, 24 different sectors are mentioned by respondents, highlighting the wide-reaching consequences of lockdown and COVID-19 restrictions in the UK.

• Only 1% of respondents believe HMRC is fully prepared for the increased level of engagement with the insolvency profession expected from being a preferential creditor.
• 64% of respondents believe that prospects for rescue within formal insolvency will decrease because of HMRC’s return to preferential status, and that it will lead to a reduction in lending facilities and increased use of personal guarantees and fixed charges.

• Just under half of respondents (49%) support a single regulator, 34% do not and 16% either don’t know or have no opinion.
• Of those in favour of a single regulator, 50% of respondents prefer a new entity to be established.

• We find support for the Regulations to provide a definition of a pre-pack (71%) and a definition of who can act as evaluator (94% agree or strongly agree).
• Opinion on the proposed timescale of eight weeks for a substantial disposal to a connected party is divided between those who consider it too long (39%) and those who consider it the right amount of time (33%).
• Of those who feel the eight-week period is too long, all respondents selected an option of four weeks or less.
• The most popular choice for an evaluator is an IP. There is also strong support for the Pre-Pack Pool or someone with relevant experience.
• 89% of respondents agree or strongly agree that an evaluator should be a member of a professional body.
• A significant majority believe it is likely or very likely that sales to connected parties will be effected by a liquidator rather than by an administrator (88%), or directors will sell the business or assets to a connected party pre-insolvency (75%).

• 72% of respondents have undertaken some training related to the revised Insolvency Code of Ethics. With the current spotlight on the insolvency profession, CPD in this area seems critical.
• Only 34% of respondents believe the revised Code will improve standards within the profession.

Louise Crawford has re-joined Insolvency Support Services as Manager with effect from 22 February, with a particular focus on outsourced client work.  Many of you know Louise and will be aware that she was our first ever employee, so it’s a real pleasure to welcome her back to the team.

Louise’s contact details are [email protected] and her direct line is 0131 510 8641.  She is looking forward to working with you all again.