Office of Fair Trading’s Insolvency Recommendations are Long Overdue

Last month, the Insolvency Service released a review paper on the regulation of insolvency practitioners (IPs) and asked the public for feedback.

The consultation, which can be read here, follows an Office of Fair Trading (OFT) investigation into corporate insolvency and practitioner fees.

The investigation found inconsistencies in the way complaints about IPs were handled and the OFT’s recommendations appear to confirm the widely-held notion that IPs fees are excessive and invariably at the expense of unsecured creditors.

Primarily, the OFT suggests three major changes:

  1. The establishment of an independent complaints body
  2. Production of a clear set of objectives for the regulatory regime
  3. The amendment of some regulations

These recommendations should give creditors greater powers in the insolvency process and more influence over the IPs remuneration package.

The introduction of the Enterprise Act in 2002, which effectively abolished receiverships, was supposed to ensure that unsecured creditors would be appropriately remunerated during an insolvency.

The act enables unsecured creditors to access up to 20 percent of a collapsed company’s realised assets – but only after secured creditors have been paid.

But, over the past decade, IPs have been accused of charging excessive fees and consequently leaving unsecured creditors – who are last in line to be paid after a company folds – very little revenue to realise.

The insolvency industry has been self-regulated for the past 50 years and as a result, the only people to have really benefited are IPs and secured creditors.

Unsecured creditors haven’t really been protected, especially over the last 25 years since the Insolvency Act came into force, so the new Insolvency Service’s new proposals are both welcome and long overdue.

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