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