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