OFT plans could push up cost of insolvency

The cost of undertaking an administration could be pushed up if an Office of Fair Trading (OFT) proposal to introduce a complaints commission receives the go-ahead.

Industry experts warned that an industry-funded compaints body would add expense into the profession which would be passed onto creditors.

“The suggestion of having an industry-funded independent complaints handling body seems an unnecessary expense and an added level of complication," said John Alexander, partner and head of business recovery at Carter Backer Winter and one of the founding council members of SPI, now R3.

The OFT issued wide-ranging crtiticism into the insolvency market, in particular calling for reforms of the complaints process.

Alexander said the OFT's report had acknowledged that regulation by insolvency practitioner licensing bodies are "efficient" at investigating and disciplining members, so a new complaints commission is unnecessary.

Carl Faulds, the president of insolvency institute the Insolvency Practitioners Association (IPA), said the nature of administrations involves a high percentage of complaints - which is not necessarily down to IPs' mistakes.

"The number of complaints against practitioners is in part an inevitable by-product of insolvency work, as creditors and others almost inevitably by definition lose money or jobs or sometimes their businesses in an insolvency."

Faulds commented that the regulatory body of the insolvency profession, the Insolvency Service, said in its annual report that complaints are seldom related directly to a practitioner's performance or conduct in an administration.

However, Faulds said the IPA and other licensors need to play a key part in explaining insolvency and its consequences to complainants.

Steven Law, president of R3, concurs with Faulds, adding that R3 members agree the existing complaints procedure is "difficult to navigate".

Law said that all IPs have to state in correspondence, during an administration, what regulatory body the IP is from, but he said it was "not easy" for creditors and debtors to understand how to complain. It was about perception of open transparency that was at the heart of installing a complaints commission, he added.

The proposals are being looked at by insolvency’s government department, Business Innovation and Skills. It is believed that a consultation will be opened on the reforms later this year, with further discussion in the interim period.

Further reading:

OFT investigation into corporate insolvency ducked issues

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