Since inception of The Insolvency Act – 30 years ago – corporate insolvency numbers have tracked recession and boom pretty well as shown in the diagram below.
Corporate Liquidations (blue) and Rescues (red) 1986 - 2016
Source: Insolvency Service Statistics
However, the data is viewed very differently by the 1,800 or so licensed Insolvency Practitioners who are feeling the pinch and seeing reported insolvency cases dwindling. In 2016, so far, there have been only 5 (yes FIVE) Administrative Receiverships – a regime halted under the Enterprise Act 2002 - and under 300 Corporate Voluntary Arrangements.
Bankers work well with professionals such as lawyers, accountants and insolvency professionals to maintain the smooth running of their loan portfolios but what might be seen as good news for some (i.e. less business failure) can equally be viewed as less revenue for those skilled in reconstruction, turnaround, recovery and insolvency issues.
We should not be blinded by the headlines. Rather we should look at the way in which the “Corporate Undertakers” of the 1980s have become “Recovery Professionals” of today.
The Insolvency Act 1986 heralded in a licensing system that, by all accounts, has weeded out the unqualified “cowboys” and has created a cardre of experienced and well qualified professionals – although there is still room for a few dodgy dealings that the Insolvency Service are able to report on and publicise sanctions and punishments for when professional standards drop.
The tip of the iceberg
Insolvency data shows only the tip of a considerable iceberg. The activities of Insolvency professionals does not simply relate to those cases where legal action has been taken. Rather, it spreads backwards along the timeline to include Pre-lending due diligence, Reports on Lending and Turnaround proposals. Company or business sales, even without a cash crisis are also within the skill set of the Recovery specialist.
It is not by accident that the UK’s careful regulation of and professionalization of the Insolvency Industry over the past 30 years has helped to cement it as the favoured destination for “bankruptcy tourism”. Such an accolade goes hand in hand with the fact that London is the commercial litigation capital of the world and that the OECD, which measures these things, sees the UK as one of the most efficient, low cost, best recovery and shortest insolvency duration regimes in the world.
So, there really is no recession in the UK insolvency market, rather it is thriving, having found itself new skills and new markets as traditional “undertaking” duties dry up.
Dr Keith Pond is the Associate Dean (Teaching) in Loughborough University's School of Business and Economics, and a senior lecturer at The London Institute of Banking & Finance.