After I qualified as an accountant at Grant Thornton the British economy tanked. For my first three years there had been four people working at the far end of the office doing insolvency jobs. We viewed them as odd kinds of people who seemed to just stay in the office. It was a function of the times – often insolvency work can trail on for years with asset realisations (especially with legal cases and insurance claims) so these people were quite bookish and spent their times writing to solicitors and creditors.
Insolvency law has changed since then.
In the 1990s you either had a receivership, where the company was run by a firm like Grant Thornton , with a view to selling all or part of it, or liquidation where all the assets were sold and the company closed. Now there are voluntary arrangements with people that are owed money and prepack insolvencies – where the assets of the company are sold back to the owners, without the debts (thus shafting everyone who is owed money and potentially pushing them into insolvency). This really only regularised what was happening back in the 90s.
Now there were lots of problems with this. Creditors (the people or companies that are owed money) come in three varieties. Those with a Fixed Charge – over property mostly. That means in an insolvency they get first dibs on that money. Those with a Floating Charge – like a Fixed Charge but over assets like stock and debtors that constantly change. Again, they get first dibs on those realisations. Finally, unsecured creditors – at the end of the queue (and even within that the government ranks first for tax, National Insurance and VAT).
When banks loaned money they would do it with a fixed and floating charge to secure their money. It would also include loan covenants – typically about cash flow, overdraft limits, profitability and interest cover (how much bigger your profit was than the interest charge). It would also have a clause that if you breached these conditions they could appoint an investigating accountant to go into your business and assess whether it should be allowed to continue trading or go into receivership. This was at the business’s expense – so your company was stretched to the limit, having trouble paying staff and suppliers and would then be slapped with a big bill for this work to go with it. Of course this came straight out immediately – no chance of us not getting paid!
In a town like Ipswich there were a limited number of firms that could do this work. The banks would want to drive down costs on the investigation so everyone would quote lowish (not too low obviously) because whoever did the investigation would almost certainly get the insolvency work if that was what was recommended and that was insanely profitable. Not many reports recommended that the company should continue trading – draw your own conclusions on that.
As soon as the accountancy firm was appointed to the receivership it would implement the recommendations from the investigation. Far more importantly the lowballing of the investigation phase would be reversed and charged to the business (of course our fees came top of the pile). The banks rarely ever questioned the fees if they got some of their money back.
As insolvency work went into overdrive, we recruited lots of people – not accountants necessarily, often people we cherry picked from the businesses we had put into receivership. Now I know not many people think of accountants and ethics in the same sentence, but there are codes of ethics and we can lose our membership of the Institute if we breach them. I am not saying these people were unethical, but many of them were unaware that they were even doing anything dubious. Business was booming so much that oversight became tenuous, as the partners and managers running the team chased new business, there was just no way they could keep tabs on what was happening. Typical minor transgressions would be charging expensive, boozy lunches for the team to the costs of the work or subcontracting bits of the job to book keeping firms and then charging the banks four times as much as if we had done it ourselves. It was just looked on as business – all very yuppy.
As this happened, and as our audit clients went to the wall, we got moved over to insolvency work. It had its own uniform of double-breasted suits and long dark raincoats. The only problem was that as qualified accountants we were paid more than the others and we had those pesky ethics.
The worst day (and there were a lot of bad ones) was when a huge building firm went to the wall. It employed 120 builders plus office staff. Five of us went there and had to make all of them redundant. Scary as hell, though there was one scarier time with a family of travellers.
This is typical of the music of the time. Somehow early 90s music has almost vanished whereas 80s music is still in heavy rotation on TV and radio stations. I am told it is because the dance elements have not aged as well as 80s pop. This song sums up that time.
Insanity
Five Miles Out 