THE INSOLVENCY INDUSTRY is cashing in at the expense of creditors, claims a Scottish National Party business spokesman.
Mike Weir, who made the statement, has called on the government to launch an investigation into the profession, the BBC reports.
Some of his complaints revolve around insolvency practitioner (IP) fees, the lack of an independent complaints commission, and that the industry is self regulated.
“The insolvency industry appears to be raking in a fortune at the expense of creditors,” he said.
Weir referred to the recent Christmas savings business Farepak’s collapse as an example of creditors receiving little, and administrators profiting.
The company entered administration with approximately £37m of debt owed to more than 119,000 creditors.
It is likely the unsecured creditors will receive 5p for every pound owed. The BDO administrators appointed are likely to receive £3m for work they have provided since Farepak’s collapse in October 2006.
John Hall, Scottish council member of insolvency trade body R3, hit back: “Unsecured creditors usually receive smaller returns in an insolvency situation than secured creditors because they occupy a lower position in the statutory ‘order of priority’ by which returns are distributed. Their position in this order is not the choice of the insolvency practitioner, it is set down in legislation.”
“Insolvency practitioners are highly qualified and experienced professionals who are paid in accordance with the priority list which is set down in statute. They have an entitlement to be fairly paid for the responsibilities they assume and the work they perform.
“Without a priority entitlement, it is unlikely that a professional would accept an appointment and its associated risks.”
Hall also highlighted the recent Office of Fair Trading (OFT) investigation into the profession, which was completed in June 2010. The OFT did not recommend an overhaul of practitioner fees.
“It is important to remember that the creditors agree the basis of the fees charged by an insolvency practitioner and they have the power to modify them, if they do not believe they justify the work performed,” said Hall.
However, it did recommend the introduction of an independent complaints commission.
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