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How AI is reshaping the insolvency sector

When asked to write this article on how artificial intelligence (AI) – one of the best-known technology assisted review (TAR) tools – is transforming the insolvency sector, I asked a chatbot. This is what it came up with:

“The adoption of AI technologies in this field is enabling professionals to enhance their efficiency, accuracy and decision-making capabilities. By leveraging AI, insolvency practitioners can process large volumes of financial data more quickly and accurately, enabling faster identification of distressed businesses and more effective solutions.

“One significant impact of AI in the Australian insolvency sector is the automation of routine tasks, such as data analysis and document processing. AI algorithms can quickly scan financial statements, legal documents and other relevant paperwork, reducing the time practitioners spend on manual tasks. This not only improves efficiency but also minimises human error, resulting in more reliable data interpretation and reporting.

“Moreover, predictive analytics powered by AI is transforming how potential insolvencies are identified and managed. By analysing historical data and recognising patterns, AI tools can forecast which businesses may face financial difficulties in the future. This allows insolvency firms to proactively approach at-risk companies with tailored strategies that could mitigate financial distress and possibly avert insolvency altogether. Such predictive capabilities also help in devising better recovery plans by assessing the potential outcomes of different restructuring options.”

While it’s early days and the insolvency sector is still determining exactly how AI can assist in matters, many firms are already harnessing its power. It’s proving a great tool for analysis while providing opportunities to streamline processes and reduce inefficiencies. I believe AI will help further develop the role of insolvency practitioners, enabling them to spend more time on the key strategic aspects of their clients’ matters and less on the procedural elements. However, what it can’t be, is a substitute for human judgement and expertise – and, of course, empathy. When I asked a chatbot if AI was empathetic, it responded, “No, AI is not empathetic in the same way that humans are, but it can mimic empathetic behaviour.”

Having empathy is a point of difference for Jirsch Sutherland, along with being open and honest. Insolvency matters are people matters, generally people who are undergoing extreme stress – which is why having empathy is so important. We are dealing with people’s lives and livelihoods and financial pressures tend to have a large impact on a person’s mental health.

Overall, AI should be viewed as something that will enhance the work of insolvency practitioners – not something that will replace them. Its ability to automate many processes and predict likely outcomes of cases, can only assist our work. Taking advantage of what AI offers can prove to be a springboard for greater efficiencies and opportunities.

 

Six ways AI assists the insolvency sector:

  • Automation of routine tasks
    Repetitive, time-consuming activities such as document review, compliance checks and data entry can be automated through AI, enabling insolvency specialists to focus on the more complex aspects of insolvency matters.
  • Data analysis & predictive modelling
    AI algorithms can analyse large amounts of financial data quickly, identifying patterns and trends that human analysts might miss. This capability can assist in assessing the financial health of companies more accurately and predicting potential risks. Additionally, predictive modelling can identify early warning signs of financial distress, enabling measures to be taken to mitigate any potential crises. These greater insights into credit and insolvency risk assessments provide insolvency practitioners and creditors with more data-driven, informed decision-making tools.
  • Fraud detection
    Due to its ability to easily scan vast datasets, AI is better able to find anomalies and patterns. Hence it can be used to identify “smoking guns” such as irregularities that could point to fraudulent activities.
  • Enhanced decision-making
    AI tools can provide insights based on historical data, which can assist insolvency practitioners make informed decisions about financially distressed companies so they can develop the best solutions.
  • Enhanced communication
    AI-driven chatbots and virtual assistants can improve communication and transparency with clients, referrers and other stakeholders, providing timely updates and answers to common queries.
  • More recoveries
    More thorough investigations could lead to more assets and claims being identified. This means a greater number of recoveries are realised, enhancing the returns to creditors.

Greg Prout
Partner
WA Insolvency Solutions



WA Insolvency Solutions