Insolvency should say fair cop to the OFT

So the OFT has come out fighting against the corporate insolvency industry for charging unsecured creditors too high fees, and a general lack of consideration and representation for them.

There’s little doubt that some insolvency practitioners go beyond the pale in how they treat unsecured creditors – keeping them out of the loop on what is going on, and seemingly pandering to the big banks that hold large chunks of security against floundering businesses. Oh, and selling assets back to management wiped clean of their creditors always goes down well.

Insolvency practitioners (IPs) understandably argue that they play to the rules, and there are just a few bad apples who stretch the rules to the limit – and beyond.

However, the profession has never been great at clearly and plainly explaining to unsecured creditors where they stand – often firing out boiler plate letters and jargon-filled updates that appear to creditors as obfuscation.

So the OFT’s recommendations to make it easier to make complaints about IPs, plus extra fee transparency, will be a great help.

But as the vast majority of IPs do follow the rules, unsecured creditors will be sorely disappointed if they think these changes will have a dramatic effect on their return from a defunct debtor.

If there are no assets, then there are no assets. Secured creditors will always take the chunk of what’s available.

Hopefully the rule changes will make it easier for unsecured creditors to understand the whats, whys and hows of an insolvency, which surely is a good thing for the profession.

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