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The OFT has recommended fundamental changes to the regulatory system to deter
Insolvency Practitioners from any sharp practices.
These include an industry-funded independent complaints handling body with broad
powers to review IP fees and actions, impose fines, and return overcharged fees
to creditors and streamlining the currently inefficient way in which the
regulatory regime makes decisions.
A specialist in company administrations has accused high street banks of
self-serving behaviour when it comes to appointing insolvency practitioners to
struggling businesses.
Tony Costigan, managing director at Phoenix Companies Consultancy Ltd, says fees
for pre-pack administrations have almost doubled as banks insist on appointing
practitioners from their own panels.
He explained: “As a company we are encountering more and more cases where the
debenture holders, normally the banks, are refusing to accept the directors
advising Insolvency Practitioner in favour of their own Practitioners, known in
the system as Panel IP’s.
"The effect is often serious as there is a fundamental difference in respect of
the fees charged by a non-panel firm as opposed to a panel firm.”
The comments follow an announcement from the OFT recommending far-reaching
reforms of the corporate insolvency regulatory regime, in order to build trust
in the market and ensure that it works in the best interests of creditors and
the wider economy.
Insolvency Practitioners IPs realise about £5 billion worth of assets annually,
and earn approximately £1 billion in fees from corporate insolvency procedures.
An OFT market study found that while the market often works well, it may not
work in the best interests of all creditors in over a third of administrations
and creditors' voluntary liquidations, procedures which together account for 75%
of income earned by IPs.
The OFT found that secured creditors such as banks, who in effect appoint IPs,
have a strong incentive to control fees and direct the activities of IPs in the
63% of cases where there are insufficient funds for secured creditors to recover
all their debts.
Mr Costigan added: “The banks seem to have an unwritten rule whereby any company
that owes them in excess of £200,000 they want to use their own Panel firms as
they perceive this as a risk worth protecting.
"In cases where directors do not stand up for their chosen exit route they are
often at the mercy of the panel firms who they have had no previous relationship
with, and certainly have not worked with them for the weeks leading up to the
final decision.
"Ultimately they lose control and it costs them extra fees.”
“It would appear from the OFT’s recommendations on reform that the Panel IP
firms should become more accountable for their actions and their costs.
"Hopefully this will result in the use of less expensive means of dealing with
the insolvent companies, as there is no excuse for Panel Firms to charge what
would appear to be extortionate fees when non panel firms can deliver the same
service at less cost.
“Further, there is no reason why Panel Firms should use the most expensive law
firms available, again, this is using up surplus funds which could be passed on
to the creditors, resulting in a better return for the creditors, preserving
jobs and allowing the new company to continue and thrive.”
The OFT has offered to assist the Department for Business, Innovation and
Skills, and the Insolvency Service in taking forward its recommendations.
Source:
RedAlert
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