As the latest inflation data from the ONS fuels concern about the state of the UK economy, the insolvency sector is bracing itself for a busy period as businesses feel the squeeze from all quarters.
Business confidence continues to fall amid soaring inflation and a cost of living crisis. The latest Global Insolvency Report from Allianz says it expects global business insolvencies to rebound by +10% in 2022 and +14% in 2023, approaching their pre-pandemic level following two years of declines. While state support will keep insolvencies artificially low in France and Germany in 2022, the UK could see a sharp rebound in 2022, with Allianz predicting a 37% year-on-year rise to 22,305 cases.
The feast and famine nature of insolvency work as a counter-cyclical business has always been a feature of the sector. And yet firms can find it difficult to gauge the level of staffing to match the change in demand when it comes to preparing for the ebbs and flows of insolvency work, admits Rebecca Dacre FCA, a licensed insolvency practitioner and Partner at Mazars.
“We work in an industry with peaks and troughs,” Dacre explains. “The industry tends to find that when we are in a peak busy period, we can find it a challenge to have sufficient experienced staff. It also means that the industry can suffer from salary spikes when we’re all busy, and then unfortunately we tend to see firms making redundancies when they go quiet. I’ve been in this industry for 22 years now and I’ve seen that ebb and flow of staff over time.”
Dacre says insolvency and restructuring firms need to play the longer game and accept that over a 10- or 20-year period, there are going to be several cycles of work: “To keep our good, experienced staff busy and occupied, we need to be thinking about outputs and how we employ them and occupy them during times when the insolvency work is lower.”
Plan for lulls
More than simply a manpower headache, there are more serious ramifications to failing to flatten out the workload curve, Dacre warns: “You end up with a self-perpetuating cycle where firms lose their volume of work so they make headcount reductions. And because they’re still trying to do a large amount of work with a small number of people, they end up with case progression issues. Firms then don’t scale up quick enough for the peak, so they never really get to the point where they've caught up with themselves.”
At the same time, with unemployment at historically low levels and with competition for talent at an all-time high, the ability to flex your workforce according to demand is no longer a given. As those staff being made redundant tire of the cyclical nature of the work, it’s not uncommon for them to leave to explore more secure careers outside of insolvency.
And yet there is much that firms can do, Dacre says, to better plan for the lulls and make good use of the relative downtime in a way that motivates staff and ensures they are ready to capitalise on the uptick in insolvency work.
For multidisciplinary firms with other strings to their bows, investing in the longer-term future of staff and upskilling them so they can work across other teams is an obvious solution, particularly in bigger accountancy practices where the skills of insolvency staff lend themselves well to areas such as forensics, corporate finance and transaction services, Dacre says. Not only can this plug resourcing holes in other parts of the firm, it can provide valuable experience for staff. Dacre reflects on her time as a graduate trainee doing just that: “It gives you a rounded experience,” she says.
Quiet times are also a great opportunity to focus on making quality improvements, by spending time reflecting on industry trends and investing in training and software to ensure that you are at the leading edge. Promoting your firm and the insolvency and business recovery services you offer is another good use of time, so that when the upturn in demand for services comes you are front of mind of referrers or intermediaries and potential clients.
You may not be able to bill your clients directly for the work, and yet the payback – in terms of efficiency gains, client service offering and employee and client satisfaction – definitely makes it worthwhile. Rather than seeing it as a missed opportunity to bill by the hour, firms should view these kinds of activities as an investment in the practice that will pay off longer term.
Similarly, outreach projects may not directly result in work for the firm but could have positive knock-on effects by raising your profile. “I used to go out to schools and go and speak to the kids about financial management and going bankrupt and what that really means. There are a lot of educational projects in the community that would be of value,” Dacre says.
Adapting is key
Oliver Jackson, a Restructuring and Insolvency Partner at law firm Freeths, believes the impact of the pandemic on the professional services sectors, including insolvency experts, is forcing firms to adapt, reassess working practices and work smarter.
“Whether we are in feast or famine mode, each poses different challenges and opportunities. Those firms and teams who are able to adapt to the periods when there are fewer formal insolvencies through the use of innovative and creative restructuring tools or through working with clients at an earlier stage to plan for and protect against a downturn in the economy are likely to flourish.
“Even in times where our transactional colleagues in our corporate and real estate teams are busy, there remain opportunities for insolvency and restructuring lawyers and practitioners who have the vision and creativity to consider, identify and pursue those opportunities,” Jackson says.
To do this requires a deep understanding of the requirements of businesses in distress, the ability to work closely with internal colleagues to help them understand and identify when clients are in need of our specialist help. “We need to be part of a team with a holistic approach to client care where we are seen more as trusted advisors than undertakers!”
Experience proves that businesses will always need creative, innovative and commercially focused restructuring advice – even if they don’t realise it, Jackson says. “It is the unfortunate truth with the cyclical nature of all economies around the world, even without the unexpected impact of events like COVID, we are never far away from the top of the distress curve. The winners in business as well as restructuring professionals will be those that use their time wisely and prepare well.”
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