In June 2010, the Office of Fair Trading (“OFT”) issued a report on its review of “The market for corporate insolvency practitioners”. The full report can be found here – all 104 pages of it!
As an independent Insolvency Practitioner (“IP”) I obviously have a keen interest in all matters insolvency and in this one in particular because the report looks at how IP’s fees are authorised and controlled. There are a number of points that are brought out by the OFT in its conclusions which generally say that unsecured creditors appear to suffer more from a lack of control of IP’s fees than secured creditors do and complaints against IPs are ineffective.
The report actually only addresses larger-sized insolvency cases and seems to ignore the cases that are much more common – typical SME’s and family run businesses. It also only specifically addresses Creditors Voluntary Liquidations and Administrations and the control over the fees paid to IPs in carrying out their functions as Liquidators and Administrators. This seems rather narrow consultation to me!
Unfortunately, the OFT also appears to have missed the point, by quite a margin. The OFT appears to have approached the whole issue with a healthily independent viewpoint [commendable!], but with little real understanding of the insolvency profession and its workings [not so commendable!].
An examination of the OFT’s own data reveals that concerns regarding the actual level of fees charged might be inflated. In the market study (in the report) of 500 insolvencies, 80% of cases resulted in IPs not being paid in full, and in 7% of cases (a percentage generally regarded as a statistically significant amount), insolvency practitioners were not paid anything at all! The report also does not actually say that the fees in any of the cases are unfairly high. The OFT appears to have been very careful not to make unsupported subjective comments.
The OFT also suggests that a change of legislation is needed to enable creditors to exercise more control. It seems to have missed the fact that from 6 April 2010 there was a huge revamp of Insolvency Legislation and Regulation – the biggest since 2002 – which does provide a lot more control mechanisms for creditors to exercise. The OFT also suggests that a central body should be set up to review IP’s fees and if necessary, on a case by case basis, reduce those fees if it is felt appropriate. In my opinion, there is no need for this as there are a plethora of mechanisms already available to creditors to regulate IP’s fees. The sad fact is that most unsecured creditors actually don’t want (or should that be “can’t be bothered”?) to exercise their rights in doing this. However, it’s a bit early to see if the recent changes will result in creditors exercising the new controls.
There are a number of professional bodies (e.g. the ICAEW, Law Society and the Insolvency Service itself) that issue insolvency licences and regulate those licence holders. The OFT suggests that the Insolvency Service should regulate the whole of the insolvency profession and not be a licence issuer. At last, a point I can agree on with the OFT! I have long advocated that there should be one Regulator (a “Regulator of Regulators”) with a consistent approach to dealing with issuing licences and handling complaints. It remains to be seen if this will happen.
In conclusion, the OFT report has taken a large slice of the insolvency market but has passed comment on that slice only with limited knowledge. A real pity – this is a missed opportunity for the OFT to work with insolvency professionals themselves to improve the way insolvency regulation works and ensure that the general public (and not just creditors in the large, headline-grabbing cases) are considered and protected.
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