Scottish insolvency sector facing chronic skills shortage

A leading figure within Scotland’s accountancy profession has warned that the industry could be about to enter an insolvency crisis as more than half of specialist practitioners north of the border prepare to retire.

Donald McNaught, a restructuring partner at Johnston Carmichael, and chair of the Institute of Chartered Accountants Scotland’s insolvency committee, issued the warning after he projected that 55 per cent of insolvency practitioners (IPs) currently registered with ICAS will leave the profession within the next ten years.

The move by so many, through either retirement or semi-retirement, will result in a “fairly seismic shift in the next five to ten years”, he said.

Mr McNaught, who became an IP himself while still in his twenties, explained: “It’s a significant number, given there are fewer than 100 IPs in Scotland.”

“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.”

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.

There were also 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 said he first realised the potential hole emerging in the industry for IPs due to the shortage of volunteers for his replacement as chair of the Glasgow’s insolvency forum in 2014.

Three years later, he put out a call for his replacement and had one volunteer:

Having only received one note of interest from a solicitor, he said: “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.”

Mr McNaught believes the shrinking insolvency market north of the border as a result of economic trauma dampening the appetite for new businesses means that accountancy firms have failed to sufficiently invest in their insolvency offerings, a trend which he believes offers opportunities to any firm willing to pick up the slack when the sector’s skill pool begins to dry-up over the coming decade.

He said his own firm, Johnston Carmichael, has been positioning itself for such an eventuality and the department he started himself in 2011 now has six IPs.

“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.

Mr McNaught also highlighted the threat from English firms looking to gain market share in Scotland as insolvency the law is largely analogous north and south of the Border.

“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.”

Flying the flag for his speciality, Mr McNaught said accountants should feel attracted to a role.

He said: “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, ”he said.

“It’s one of the few specialisms in accountancy that demands a lot of people skills and it’s a very challenging environment.”

Addressing the more immediate question of whether IPs should expect ‘Brexit’ fallout to impact their business, he said he did not necessarily foresee a large number of insolvencies, but noted that cross-Border issues will become more complicated.

Mr McNaught explained: “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.”

Echoing the craving across the business world for real information on the ‘Brexit’ process from politicians, he said he would be assured “as long as the government provides some early clarity on the way forward so businesses can adapt accordingly”.