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Michael Murray’s on-going commentary on issues in corporate and personal insolvency law and related policy and law reform, in Australia and internationally. Given the scope of insolvency, this extends to business, consumer and professional conduct, and ethics, governance and regulation, criminal, tax, environmental and administrative law, and the courts and government.

 

Digital disruption is here but “progress towards a digital insolvency practice has to date been slow”

A recent journal article on the impact of artificial intelligence and its use by the insolvency profession has good and bad news – the good being as to the great potential for the use of AI in insolvency practice, the bad being the limited view of those benefits held by the profession.

The article** is based upon responses to a survey of personal and corporate insolvency practitioners, from large , medium and small practices in Australia.

It looks at the range of new technologies, such as robotics and machine learning, defined generally as AI which it is said “continue to grow exponentially”. Future automation opportunities are being provided by cloud computing and standardised business reporting (SBR) thereby allowing business information in accounting and business software to be extracted into pre-filled government reports, thereby generating significant cost savings in dealings with AFSA and ASIC.

Some particular issues, out of many covered in the article, are these

ASIC and AFSA

Survey participants strongly supported AFSA’s online delivery of personal insolvency services as instrumental in decreasing compliance times and administration costs over the last 10 years. However there was not the same level of support for ASIC’s online delivery of corporate insolvency services, which may reflect the smaller range of online services provided by ASIC to IPs.

In fact, ASIC’s expressed belief in regulatory technology’s potential to reduce costs and improve efficiency of its own product and service delivery was not strongly endorsed by those surveyed. Survey respondents expressed concerns that “higher levels of intervention by ASIC meant further time diverted from core responsibilities to creditors”; “that ASIC technology was poorly planned and unlikely to generate meaningful efficiencies”; “that ASIC’s increased compliance costs due to over regulation or the ASIC levy would eliminate any technology linked savings and the unpredictability of cost, especially for smaller practices, would have a negative impact on IPs”.

Unprepared and uninterested?

The majority of surveyed IPs appeared unprepared to investigate or exploit the opportunities that AI may present, believing that there is no need to do so or, alternatively, they are unaware of such opportunities.

When asked whether they looked to the experience of other professions or industries for guidance in dealing with digital disruption, the responses were that there was no need, given “we (insolvency profession) do not have any significant disruptive events” or “are not as impacted as other professions”.

The author writes that “it may well be a matter of ‘early days’ as IP survey answers also included “still considering my options”; “saw no material change over next 5 years”; “would be no cost savings as costs and savings would balance out”.

Two positive, but not popular perceptions were: “regulatory technology may provide better access to information such that insolvency practitioners can pursue claims for the benefit of creditors”, or “regulatory technology would have a positive impact by improving access to data/information at a lower cost”. This latter view was, however, “conditional upon reducing regulatory red tape, eliminating non value-adding statutory requirements, amending the method to maintaining and sharing data and information across offices and adopting efficient, cost-effective communication to end users”.

New work sources

When asked if new sources of work were emerging from the use of technology, IPs were equally divided as to the benefits of their practice’s website or social media sites. A website that provides direct points of contact was recommended, especially for potential new clients who are not referred by a solicitor or accountant, but prefer to conduct their own online searches.

Blogs and newsletter emails with targeted messaging, such as the use of “safe harbour” options were also sent to potential referral sources. Facebook and Google advertising also featured as part of various practice marketing. Despite these efforts to create an online presence, a number of “yes”-voting IPs considered their presence online was secondary, compared to the traditional “word of mouth” referral base. But the majority of “no” respondents shared the view that client referrals were significantly relationship based.

Investigations?

As might be expected, overwhelmingly, surveyed IPs agreed that technology had altered how they conducted investigations resulting in positive outcomes – faster access to a wider source of information; more efficient use of time and resources when investigating; and the ability to collect and analyse data, as evidenced below. Web-based accounting software such as Xero and MYOB online provided ready access to financial records, without the IP having to leave their office, saving time and investigation costs.

However, IPs did identify certain disadvantages – a perceived need for technology-savvy staff, and a perception that the quality of data provided has decreased, rather than increased, although the author says that this may reflect an inability to analyse the data provided rather than the quality of the data provided.

Despite these acknowledged disadvantages the majority of technology applications used by the IPs surveyed did save time and investigation costs as they automate what the IP previously had to perform manually as part of their investigations.

But the article says that, at this stage, there does not appear to be innovative technologies being applied by IPs when investigating insolvencies.

Conclusion

The article concludes with these comments, that the insolvency profession is not immune to the digital disruption caused by technological change which brings opportunities to lower costs, improve efficiency and provide additional services as an IP.

But the survey “responses indicate that progress towards a digital insolvency practice has to date been slow”.

To accelerate progress, the authors says that further education of IPs regarding the opportunities proffered by AI is needed.  Government agencies, universities and ARITA, CAANZ and CPA should collaborate and support IPs in developing their digital practices, especially in smaller firms with less resources.

This summary does not do justice to the whole article which is recommended reading.

Comment

To some extent insolvency practitioners are limited by the legal and regulatory and IT environment in which they work – a focus on individualised explaining, communicating, recording and filing; limited government databases, as to company records, director identities; complex and duplicated legislative requirements; expensive court access; and more.

But there is also much that the practitioners can do themselves.  Just as a business may well falter or fail if it does not invest in itself, so too may elements of a profession – evident throughout history.

I was asked by an overseas regulator 4 years ago now whether I thought the time had come to require all insolvency firms to have full capacity to conduct administrations on line, on the basis that the costs of allowing firms without that capacity was too much of a burden of the system.

Whatever the answer was then, it would be more certain now.

What would constrain such action in Australia, compared with the overseas jurisdiction about which the question was asked, would be the limitations on what the government and regulators themselves could give to support such a move.

** AI and the Insolvency Profession: The State of Play (2018) 26 Insolv LJ 172 – Dr Jenny Dickfos, Griffith University

 

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