About 58 per cent more Cayman-registered companies are failing this year than were this time last, figures show.
The trend, insolvency experts say, flows from the combined effect of high-profile financial scandals last year as well as the more predictable impact of global economic decline.
In the first quarter of 2009, 394 liquidator and creditor notices were published in the Cayman Islands Gazette, against 272 for the same period last.
Although these figures combine voluntary, official and court-supervised liquidations, they are a fair barometer of an upswing in company failures that professionals predict could continue for some time.
‘We’re unlikely to see something as shocking as this again,’ said Tony Heaver-Wren, a litigation and insolvency associate at Appleby, of Bernard Madoff’s US$64.8 billion scandal last year.
‘I doubt that the full consequences have been felt yet and I imagine people staying busy with liquidation work,’ said Mr. Heaver-Wren. ‘I think we’ll continue to see an upward trend of the statistics.’
An accountant practising here echoed the sentiment.
‘That volume may increase further,’ said Hugh Dickson, managing director of the Grant Thornton insolvency team. ‘We’re anticipating an increase in volume. The general economic worldwide recession continues.’
If anything, he said that the rise in company failures had been more modest than expected.
‘In fact, I’m surprised there hasn’t been more,’ said Mr. Dickson. ‘I’m anticipating that there will be more market uptick…we’re not at the bottom yet.’
It’s a similar story as far as other Cayman-based work is concerned.
‘Since last summer, there has been huge fallout from at least two frauds,’ said Mr. Heaver-Wren. ‘It has taken some time to permeate and now I’m seeing a marked increase in distressed fund work.’
In particular, he said, the Tom Petters (US$3 billion) and Madoff scandals sent ripples through the Cayman market.
Though there were no direct connections between either of those frauds and these islands, Mr. Heaver-Wren said market confidence had diminished.
‘As liquidity dried up, these incidents couldn’t be hidden,’ he said. ‘That’s led to a new sobriety among the investor public.’
He said that the Madoff scandal, in particular, had been like a ‘nuclear explosion’ for financial services.
‘Since the Cayman Islands is a base for so many hedge and mutual funds,’ said Mr. Heaver-Wren, ‘a number were impacted, directly or indirectly.’
While the accountancy profession, in particular, has been a beneficiary of the insolvency work boom, recruitment of accountants is not up.
That’s according to government figures published last month which showed a 3.2 per cent decline in work permits issued to accountants – a drop from 711 to 688.
It’s a trend that, in spite of first appearances, one accountant said was not counter-intuitive.
‘It’s possible that the rise in demand for insolvency specialists is not enough to offset the drop in work going to the audit and compliance professionals,’ said Mr. Dickson. ‘If it’s an audit firm, it’s very possible that it’s not experiencing boom and is very possibly laying off. Unfortunately, you can’t wave a magic wand and turn an audit specialist into an insolvency one.’