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Insolvency in a business is when a company is not able to pay its debts when they fall due. Luckily, companies that are in trouble can get help and guidance from experienced professionals during this difficult time.
Let's take a look at what working as an accountant in the field of insolvency involves, and how it could possibly be the right area of specialisation for you.
Accountants are often engaged when a company is facing financial difficulty. There are a range of different outcomes for businesses in financial distress which may involve a restructure, a solvent turnaround or potentially a formal insolvency appointment. In either case, accountants are engaged to provide support in working with the company to improve the situation and outcomes of the business.
Timothy Duncan, Senior Accountant at McGrathNicol, explains that "ordinarily we will be engaged by a lender, borrower or other stakeholder to conduct a review of the company facing financial distress to urgently understand the business, how it operates, its key areas of risk and opportunity and to ultimately devise and implement a plan going forward".
Accountants will work to get the best possible return for the stakeholders who are owed money by the company in financial distress, also known as the 'creditor group'. This may involve managing the continuing operations of the business while coordinating a structured wind down which may include the sale of the business or its assets, or restructuring the company's operations to preserve its value.
The forensics of accounting
The forensic accounting element of an insolvency appointment often involves forming a view of whether or not any fraud has been committed by directors or company staff prior to the company becoming insolvent.
"Typically, this includes making an assessment as to whether any fraudulent transfers were made to certain creditors who may have personal guarantees, clearing of balances with preferred suppliers or paying off directors' personal loan accounts," Timothy says.
Another common example of the interaction between forensic accounting and insolvency includes the process of identifying whether any funds were misused in preparation for a phoenix operation in which assets are removed from the company to diminish its value prior to the company becoming insolvent.
An insolvency practitioner's role is to devise and execute a solution that maximises the return to each category of creditor including the secured creditor, employees, trade creditors or shareholders.
"In an environment where a business is quickly losing cash, or is unable to pay its creditors, an insolvency process provides a mechanism to pay creditors in a fair and equitable way while maximising the return and improving the amount that would be paid to creditors in the ordinary course of business. In addition, there are also instances where the business, or parts of the business, can become profitable again, and working towards this can be incredibly rewarding," Timothy says.
As an accountant in the insolvency sector, there is also the opportunity to work across a range of industries. Timothy began working for McGrathNicol as a graduate. In his time with the firm, he has worked with mining companies QLD and NSW, retail companies in Sydney and Canberra, transport and logistics companies in WA and NSW, and other not-for profit organisations to name a few.
One challenge working in the field of insolvency is working with people in sensitive and often uncertain situations.
"On a day-to-day basis, we are often dealing with stakeholders in high-pressure situations, communicating with shareholders, ordinary trade creditors, employees including senior executives, banks, financial institutions, regulatory bodies and law firms," Timothy says.
"One of the most challenging aspects of working in the field of insolvency is being engaged in a high-pressure situation to quickly review and evaluate a company's performance, while identifying the key areas of risk and opportunity for the company and industry it operates in."
The decision for future CAs
Timothy decided to become a Chartered Accountant while completing his university studies, and began exploring his options during his second last year.
"Initially it appeared as though audit and taxation were the most likely areas of opportunity to compete a summer internship and ultimately be offered a graduate role."
"I learned through a contact about the opportunities that working in insolvency could bring me and I knew my personality and career aspirations made me more suited to this line of work."
Insolvency is a multifaceted field of accounting, offering opportunities for professional development and the ability to work across many different industries.
Timothy notes that "a career in insolvency provides an opportunity to develop a strong commercial and analytical skill set that is that is highly transferrable and well regarded by employers within the corporate, financial and legal sectors."
Learn more about insolvency and the associated legislations.