ADMINISTRATIONS are coming thick and fast in the UK. The company collapses are boosting income for insolvency specialists but are also challenging the profession’s reputation. Angry creditors are accusing insolvency specialists of charging excessive fees and costs.
Take the recent collapse of insolvency firm Bridge Business recovery, which has left creditors out of pocket and suggesting that Bridge’s administrators have expensive habits.
The collapse of the insolvency firm came as a surprise but, a recent creditor report highlighting KPMG charged nearly as much as they recovered didn’t help efforts by insolvency firms to portray themselves as the corporate knights in shining armour.
KPMG partners Samantha Bewick and Colin Haig were appointed administrators in July last year. A creditors’ report, seen by Accountancy Age, shows that their total fees were about £713,000 for 2,500 hours (about £285 per hour) for work on Bridge’s two corporate entities – Bridge Business Recovery and Bridge Business Recovery II.
The KPMG team clearly put in the hours, but their charge can seem pricey compared with the £785,000 they recovered for both organisations – according to receipts and payments detailed in the creditors’ report.
The fees show creditors how the administrators spent money to recover money. They spent about £12,532 redirecting mail, £5,074 on meetings and £52,932.70 on the sale of the business amongst other costs.
For unsecured creditors the pot looks empty. Unsecured creditors who are owed about £4.06m, with HM Revenue & Customs making up £1.35m of that and trade creditors £502,538.
On top of the administrators’ fees the cost of realising the assets stands at £805,995.72, which includes £203,039.34 of legal fees, and £5,234.57 for valuations. Liquidators will investigate the events leading up to the collapse and try to recover yet more funds from sources such as indemnity insurance.
The creditor report paints a gloomy picture. Administration fees and costs mean that Bridge is now more in debt now than before it entered administration.
The report also claims proceedings have been issued against former partner James Bradney for alleged misfeasance, breach of fiduciary duty and breaches of partnership agreement. A freezing injunction, where all assets including bank accounts are frozen, has been obtained against his assets and his licence, as previously reported by Accountancy Age, was revoked by the ICAEW last year.
Is creditors’ criticism of insolvency practitioners fair? Insolvency professionals say that managing an administration can be expensive.
Creditors have to be kept informed; information has to be gathered quickly, efficiently and correctly. There are also regulatory expenses incurred for reports to government and creditors which, can seem astronomical to creditors, but can’t be cut.
The Bridge collapse is more complex than most administrations. When an insolvency practitioner is appointed they are personally liable and not the firm. So for KPMG administrators where they would normally sell off the valuable assets, in Bridge the valuable assets belonged to the practitioners and not the firm.
In the majority of cases, UK administrators’ fees are about or below two per cent of realised funds. For instance PwC administrators billed £322m for 26 months work (and counting) on Lehman Brothers, which equates to just 0.65% of returns to creditors.
Samantha Bewick and John Standish, again both partners at KPMG, were appointed liquidators on 21 December and as liquidators are granted greater powers to investigate director decisions and pursue further assets for creditors.
Until the liquidation is complete and they have exhausted all avenues of trying to recover funds the creditors are unlikely to receive anything.
A statement from KPMG said: “Returns to unsecured creditors will depend on the outcome of the liquidators’ investigations and the returns from the work in progress.”
The Bridge administration highlights the constant battle between creditors wanting money they are owed and practitioners who are regulated to within an inch of their professional life.
The insolvency profession has a hard task of justifying their spending especially when returns are minimal or non-existent. But with more high-profile company failures likely this year administrators are set to face lots more flak from creditors.
Steve Absolom and Will Wright from KPMG Restructuring have been appointed joint administrators to City Motor Holdings and associated companies
Partners from Johnston Carmichael have been appointed as joint administrators to Axon Well Interventions Products UK
Begbies Traynor have been appointed administrators of William Anelay Ltd, York, one of Britain’s longest-established construction and heritage restoration companies
Smith & Williamson has been appointed administrators of charity 4Children