SCOTLAND’s accountancy profession is facing a shortage of insolvency practitioners, with more than half set to retire, potentially hampering the future provision of insolvency assistance.
Donald McNaught, a restructuring partner at Johnston Carmichael, and chair of the Institute of Chartered Accountants Scotland (ICAS)’s insolvency committee said his own calculations indicate that 55 per cent of insolvency practitioners (IP) currently registered with ICAS will leave the profession over the next decade through either retirement or semi-retirement.
“There will be a fairly seismic shift in the next five to ten years,” he said. “It's a significant number, given there are fewer than 100 IPs in Scotland,” he said.
“You have IPs who have been running departments for over 20 years, they have been the figurehead, and it may not be the case that they’ve developed the next generation.
“There is going to be a void at senior level,” he added. “Whether people come through to fill that void remains to be seen. I couldn’t say for certain that will definitely happen.”
Mr McNaught said he did not expect the Brexit vote to have any impact on the domestic regime but added that cross border issues would become more complicated.
“We think the British economy should remain very strong but there is no doubt that the uncertainty the outcome will create will impact inward investment and sectors which may have challenges transitioning away from EU subsidies,” he said, adding that he does not necessarily expect a large number of insolvencies, “as long as the Government provides some early clarity on the way forward so businesses can adapt accordingly”.
Mr McNaught became an IP while still in his twenties. He relocated to Glasgow from Aberdeen in 2011 and took the chair of the city’s insolvency forum. Three years later, he put out a call for his replacement and had one volunteer: a solicitor.
“I scratched my head. Where is the 30 year-old aspiring IP looking to raise their profile and get on the front foot?” he said. “There weren’t any. I was really disappointed.”
The crux of the industry’s quandary is that while Mr McNaught believes the insolvency market – which has shrunk in Scotland as a result of the downturn producing fewer businesses and fewer investors – will find a more natural equilibrium between IPs and insolvencies, there are decades of knowledge and experience that will drop off a cliff edge. For those firms who invest in IPs, there will be opportunities.
“You’ve got prominent players who will have succession issues in the next five years and, potentially for the right person there are tremendous opportunities,” he said.
Johnston Carmichael was well-positioned, said Mr McNaught. He started the department in 2011 and it now has six IPs.
In corporate insolvency the law is largely analogous North and South of the border, and so another fear is that more English firms could seek to gain market share in Scotland.
“If the marketplace doesn’t have the confidence in the profession then UK wide relationships could benefit,” said Mr McNaught. “Practitioners south of the border might start winning more work up here if there was a shortage.”
Mr McNaught said there was huge appeal to working in insolvency – or restructuring as most accountants now refer to it.
“Auditing is reviewing someone else’s numbers, but in insolvency, it’s your numbers. IPs are at the coal face, making commercial decisions every day about the operations of a business, standing in the shoes of the directors, dealing with individuals,” he said.
“It’s one of the few specialisms in accountancy that demands a lot of people skills and it’s really a very challenging environment.”
There were an estimated 224 company insolvencies in Scotland in the first quarter of 2016, an increase of 1.8 per cent compared to Q1 2015.
Of these, 144 were company liquidations – a 2.1 per cent increase on the same quarter of 2015. In addition there were an estimated 76 creditors’ voluntary liquidations (CVLs). The number of CVLs has remained largely stable in recent years, according to UK government figures, with between 50 and 100 cases in each quarter since 2010.
Mr McNaught argued that there would always be a requirement for bad businesses to fail in order for that underlying asset to be put to better use. “It’s a good sign if there are decent insolvency levels,” he said. “If you’ve got 10 new starts and one of those might fail. If you’ve got 100 then there is lots of activity and you’ll get a higher level of failure, but that’s a natural symptom of a strong economy.”
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