Britain’s corporate insolvency regime is unfairly slanted against small businesses, customers and the taxman, the Office of Fair Trading said yesterday.
It called for a shake-up in the way that failing companies are run or wound down to build trust in the market and protect unsecured creditors.
The watchdog said that the system, which generates around £1 billion a year in fees for insolvency specialists, is failing in more than a third of cases.
It singled out insolvencies in which secured creditors, particularly banks, are not involved. Banks, which appoint the insolvency practitioners (IPs) — typically accountants — are able to use their influence to drive down fees, the OFT said, but in 37 per cent of cases they are not involved and fees are about 9 per cent higher. This suggests that unsecured creditors are not getting a fair deal.
Clive Maxwell, OFT senior director of services, said: “Smooth entry and exit of firms is an important feature of a competitive economy, and while we have found that the corporate insolvency market works well in ... the majority of cases, unsecured creditors are insufficiently represented and protected.”
Advertisement
The OFT recommended several measures to improve the existing regime, including greater transparency on fees. It called for creditors to be given a greater role in the process and for the establishment of an independent body to handle complaints.
It wants the Insolvency Service, which currently oversees the selfpoliced bodies that represent IPs, such as the Insolvency Practitioners’ Association, to have greater powers. These would include issuing fines or conducting investigations if it believes that the rules are being disobeyed.
IPs defended their work and said that the disparity in fees between cases involving banks and those involving only unsecured creditors was due simply to the banks’ regular use of their services, which allows them to negotiate substantial discounts.