The good, the bad and the cowboys: a look inside the 'Wild West' world of insolvency practitioners

There are mavericks, cowboys and some down-right dodgy dealers in the world of insolvency practitioners according to sources within the industry who speak to ICSM Credit on a regular basis. The credit intelligence group’s members seek information and help in keeping their businesses free from bad debts, late payers and insolvent clients through shared information and mutual support.

“Inevitably we deal with firms in administration and the insolvency practitioners who seek a buyer for collapsed companies or to liquidate them,” said Ian Carrotte of ICSM Credit, “and as a result we do see and hear things which raise eyebrows to say the least.”

Covid-19 crisis

Industry insiders have spoken about the industry on the condition of anonymity over the last few weeks due to the rise in demand for insolvency practitioners as the number of companies fail during the Covid-19 crisis.

“Until earlier this year a lot of the smaller outfits were kicking their heels,” one source told ICSM Credit. “They would get the odd £5,000 insolvency but basically apart from the big four a lot of them didn’t have much on. That’s now changed and it is hard to see how the industry will cope.”

Another insider said they were like all professions with the good, the bad and the mavericks. “With more work and less IPs to do it the prices will go north,” he said, “There’s suddenly a lot of work – not just for the big boys with the sexier side of the business sorting out big brand names, but for the ordinary IP with maybe a handful of staff or less.”

Insiders have told ICSM Credit the ‘big four’ (PwC, KPMG, Deloitte and   E&Y) will bring in related staff from other parts of their business as the demand grows but some of the small IPs will get in so-called debt restructuring consultants and business specialists if they are short staffed. It’s like the 'Wild West' with not enough scrutiny one said. He continued: "There are cowboys who will look at a company, make a quick report, get a friendly IP to give it the nod and put it through leaving the unsecured creditors with nothing.”

The big four have been under the media spotlight for some time after they have been criticised by politicians over their fees. For instance a parliamentary committee investigated PwC over their consulting work of Carillion for which they charged £21m only for the firm to crash weeks later owing thousands of suppliers and contractors millions in unpaid invoices with a total liability of £7bn. PwC then worked with the Official Receiver to liquidate Carillion picking up more millions in fees. They had previously given the firm a clean bill of health with an audit as well as another notorious case with BHS as well as being fined for failings in auditing Connaught plc and RSM Tenon.

So it is not surprising insiders are voicing concerns over the way IPs operate. One told ICSM Credit that part of the problem was the under resourcing of the Insolvency Service who scrutinise the industry which had been cut in size over the last 20 or so years. “Many of the experienced staff who knew how insolvency worked have retired and so there is no longer the depth of knowledge or numbers to deal with the work,” was one comment. Back in the day the insider said an IP would have the old school skills required to run an enterprise and to turn it around, find a buyer and to keep it working without losing customers and staff.

One issue that is often raised is the lack of SMEs that take out invoice insurance. People in the business say that smaller firms often don’t know about invoice insurance and consider it too expensive. “The big boys will all have it,” said one consultant, “but small business owners see it as an overhead they can do without but if the worst happens it means they can survive a major bad debt.”

How firms collapse and what route they take into insolvency has changed over the years. CVAs were thought to be a panacea at one time is a view that ICSM Credit has heard on more than one occasion but it seems they are not as popular as they once were. The same is happening with pre-packs as, “there’s been a lot of media noise about them in the market,” said one industry source, “and nobody wants bad publicity, but if it means a company can survive and people keep their jobs isn’t that better than everyone losing out?”

Ian Carrotte said the main issue was whether it’s a pre-pack, a CVA or a liquidation it is too often that it's the suppliers and the staff who lose out and in effect subsidise the defunct company's collapse. He said: “Most businesses can avoid bad debts with sound credit and accounting practices and by being part of ICSM Credit so they get the early warning signals – but the one thing that is hard to stomach is when a company is given an audit by an accountant and within weeks they go bust. It happened with Thomas Cook and Carillion amongst others and that is where action needs to be focused by the authorities as we expect an auditor to do their job properly.”

ICSM Credit

For details about ICSM Credit call 0844 854 1850 or visit the website www.icsmcredit.com or email Ian at Ian.carrotte@icsmcredit.com on how to subscribe and to join the UK’s credit intelligence network to avoid bad debts and late payers. Follow ICSM Credit on FaceBook, Twitter and YouTube and Ian Carrotte on LinkedIn.

To keep up to date subscribe to the FREE ICSM Credit Newsletter to hear all the latest insolvency news and to see who has gone out of business click on the orange panel on the top left of the home page of the website www.icsmcredit.com or send an email to Ian.carrotte@icsmcredit.com

For details for the work of the journalist Harry Mottram visit www.harrymottram.co.uk