One measure of success for any profession is the value it creates compared to its cost of operation
In their article “Worth the cost?” R3 investigates the value Insolvency Practitioners’ (IPs) create for the UK’s economy and details how the profession’s contribution is critical to entrepreneurial venture. Funds from investors willing to put their money at risk are essential to create and grow new companies. Not every company survives as every competitive situation creates both winners and losers, both being testament to a vibrant economy. IPs professionalism ensures that assets held by companies at-risk of insolvency are protected and IP’s actions serve to maximise the value that can be returned to investors.
At several of R3’s regional events I’ve attended recently the subject of insolvency fees has been a topic for discussion. As reported by Julia Irvine in March at Economia, new rules before Parliament will require at the initiation of a case that IPs provide a summary of estimated costs and this total will potentially act as a cap on fees. This change is welcomed by Business minister Jo Swinson and by the outgoing R3 president Giles Frampton: “The profession first supported an upfront estimate system in 2011 and we are pleased to see it set to become reality.”
In order to produce an estimate, IPs will of course first need to do some work to understand the case at hand. It is common for IPs to undertake work for which they are not paid – a situation not unique to insolvency as other professionals undertake presales tasks. The pre-appointment phase can be competitive: an opportunity for an IP to establish credentials and convince creditors – the service buyer – to choose them and not a competitor. One necessary duty that an IP must always undertake up front is to form an understanding of the structure of the distressed company, its directors and their ownership of property and other assets. The faster an IP arrives at this understanding the better. Better for the prospective client who can make an appointment before the value of assets declines and better for the IP who must work fewer unbillable hours.
Many firms and practices continue to conduct this up front search for assets in a manner that is paper-based, clerical and ad-hoc. Because it is difficult to accurately estimate the resources required for such processes IPs will be hindered in their quest to accurately estimate their fees before being appointed to a case. A way forward is for IPs to realign asset search with the growing digital economy and perform this task electronically – as a standardized process lending itself to accurate measurement and estimation.
At a time of change, the insolvency profession will benefit from technologies that allow them to standardise and streamline any element of their processes: Encompass can fulfill this role. Encompass is the visual information management platform for restructuring and insolvency professionals. As a one-stop-shop providing a single point of access to data from Companies House, Land Registry and a growing list of credit, property and company information providers, Encompass transforms search from a tedious, error-prone and time-consuming chore, to an easy and automated task. Displaying the results in a powerful visual chart, it instantly provides a deep understanding of people, companies, property and assets, enabling fast decisions informed by the big picture – which drastically reduces unbillable time freeing case workers to focus on productive work.
As R3 assert, insolvency professionals fulfill a role critical to the UK’s entrepreneurial economy. The upfront estimate system represents a new direction for the profession and an opportunity to rethink existing business processes in the context of a digital economy. Inevitably technology will play a role, a view shared by Kevin Pinkerton, Partner, Insolvency, Freeths:
“A sizeable element of insolvency work is speculative. This means that inevitably costs will be incurred which may ultimately be irrecoverable. Assessing possible Insolvency Act claims is not something you can dumb down or make simple. Anything like Encompass that enables information to be assessed more quickly, is going to be helpful to our clients, and us.”