OFT investigation into corporate insolvency ducked issues

The Office of Fair Trading (OFT) investigation into the corporate insolvency profession "ducked" one of the largest issues for the profession according to an insolvency practitioner at Carter Backer Winter.

John Alexander, a former partner at KPMG and currently head of corporate recovery at Carter Backer Winter, said the OFT investigation did not look at the issues of anti-competitive practices conducted by some secured lenders such as banks in its investigation into the corporate insolvency market.

The OFT launched an investigation on corporate insolvency at the end of last year with a report on its findings released this month.

It suggested the profession would need "far reaching reforms" including greater involvement from unsecured creditors and the introduction of an industry funded independent complaints body.

"The OFT has ducked the issue of anti-competitive practice by secured lenders i.e. banks, who have only a small panel of approved insolvency practitioners (IPs) which they will appoint, and who primarily act in the interest of the banks and not for the wider interest of other creditors generally. There shouldn't be a pre-selected panel - they should simply get the best people for the job," said Alexander.

He explained under current legislation unsecured creditors are given " numerous opportunities" to influence the choice of IP, remuneration and insolvency process to be used, e.g, liquidation or a company voluntary arrangement. However, unsecured creditors rarely took an interest or played an active role in the process.

"It is often a struggle for IPs to get any unsecured creditor to exercise their right to vote on any of these issues and I, together with most other reputable IPs, would welcome the greater involvement of unsecured creditors for whom, after all, we are working," said Alexander.

David Butler, an IP from Hillier Hopkins agrees adding: "The report confuses a lack of control by unsecured creditors with a lack of interest - unsecured creditors can veto an IP’s fees, they can ask the courts to look at IP’s fees, and they can complain to the IP’s regulatory body, which will rightly impose very severe financial sanctions if it finds that the IP has drawn excessive or unauthorised fees.”

Commenting on the suggestion by the OFT to introduce an independent complaints body, Alexander said: "The suggestion of having an industry-funded independent complaints handling body seems an unnecessary expense and an added level of complication when the recognised professional bodies are already acknowledged as being efficient at overseeing the regulation, investigation and disciplining of their members, especially at a time when government is keen on reducing red-tape and central costs."

Further reading:

Insolvency profession responds to OFT report

Insolvency Service backs OFT claim that practitioners charge too much

OFT wants "far-reaching reform" of corporate insolvency regime