For the first time, WWL presents a dedicated guide to non-lawyer experts in the restructuring and insolvency space, an interesting and dynamic field that has seen numerous trends and developments. One practitioner listed off just some of the issues likely to have implications on the market: “Next year and the year after, we’re expecting to get pretty busy; consumer confidence is quite low, we’ve got China slowdown, possible US recession, Brexit, and US interest rates.” In the restructuring and insolvency industry itself, the profession has been placed under scrutiny by regulators, with the Competition and Markets Authority (CMA) highlighting serious competition issues. Meanwhile, in 2018 a record number of store closures in the retail sector was noted, and as fundamental change brought about by, among other things, the digital revolution, continues, practitioners in the field can expect more work in this area.
At the beginning of 2018, the UK saw an unprecedented case involving the collapse of construction giant Carillion. The company had 43,000 employees globally and sales of £5.2 billion in 2016. The collapse received a lot of attention, not just because of the number of people employed by the company, but also due to its being a massive supplier to the UK public sector. Cost overruns on projects such as the Midland Metropolitan Hospital and the Royal Liverpool Hospital were key concerns, with banks disinclined to lend the company more money. In addition, however, the case also brought the so-called Big Four (Deloitte, EY, KPMG and PwC) into the spotlight, since all of them had contracts with the collapsed company. Collectively, the Big Four made £71 million working alongside Carillion in the 10 years leading up to its collapse, sparking a debate around conflicts of interest among auditors.
The CMA published a report addressing concerns about the UK audit industry in April 2019. This report recommends a “joint regime” in the sector, which would require Big Four firms to partner with a smaller firm in the audit of FTSE 350 companies. It highlights the importance of the profession, with auditing being “crucial to the efficient allocation of capital and therefore overall performance of the economy”, as the CMA put it. The debate continues, with regulators and MPs calling for steps to tackle conflicts of interest arising from the activities of such huge global practices, with steps including potential separation of the Big Four’s auditing and consulting businesses floated. As practitioners from the Big Four make up more than one-third of the listings in this guide, we are sure that there will be much interest and concern about the future of the industry – even as their practices become busier still.
Regulatory change is already occurring in several jurisdictions in relation to company insolvency and restructuring, including adjustments of laws in order to make it harder to restructure non-performing credits. In India, changes were made to the Insolvency and Bankruptcy Code in 2017 and 2018. These adjustments served to make India more creditor-friendly, including changes to reduce the role of the courts formal processes. As a result, practitioners we spoke to predicted increased interest in India as an attractive jurisdiction for creditors.
Elsewhere, Singapore passed the Omnibus Bill in October 2018. When this comes into effect we can expect to see Singapore take a more prominent position in the market, as it legislates for more borrower-friendly options.
Meanwhile, in August 2018 the UK government published proposals to reform the UK debt restructuring regime, which will make for a significant departure from the current scheme of arrangement process. However, it is uncertain as to when these adjustments will be made and brought into effect, particularly while the Brexit debate is ongoing.
WWL will continue to observe these proposed changes and will produce further analysis in the area as developments occur throughout the year.
As one interviewee remarked: “A lot of us are sitting on pins and needles about what’s going to happen with Brexit, as well as with the US and China.” In the latter case, the true impact of trade tensions has yet to be seen. However, already it has been noted that trade between these two regions is causing a strain on global business, with rising consumer prices in the US and companies having to restructure their supply chains. Worsened financial conditions may result in a lack of business confidence which could, in time, impact the restructuring and insolvency field.
Brexit is also a considerable cause for concern among restructuring and insolvency practitioners. The UK is a popular jurisdiction for restructurings and insolvencies, thanks to its agreeable schemes of arrangement. However, it is unknown how cross-border restructurings and insolvencies will be conducted post-Brexit. The UK may become a less attractive locale for such arrangements and multinational companies may choose to look to EU member states to provide a solution.
Competition for work in among firms providing advisory and consulting services in relation to restructuring and insolvency remains fierce, with practitioners “seeing a lot of new entrants into the market”. One interviewee commented that “the Big Four are becoming less relevant because of conflicts, while boutiques, on the other hand, are highly specialised but lose out because they don’t have the global knowledge and reach”. Perhaps due to increased competition, pricing is becoming more of an issue, with sources commenting that “the idea of hourly rates is becoming much more difficult to sell to clients”. Offshore, meanwhile, the “Cayman market has expanded in terms of the numbers of providers”. This is despite some uncertainty: as one respondent put it, there are “pressures on offshore jurisdictions relating to various issues, and it’s unclear what the EU will feel towards offshore post-Brexit”.
Further analysis on the restructuring and insolvency market will be published throughout the year on whoswholegal.com. Visit our website to subscribe to briefings about the topics you are interested in or to read all of our analysis and market insight.