OFT delves into insolvency market

With creditors whingeing over being out of the loop on pre-pack insolvencies
and landlords unhappy over attempts to remove rental liabilities, insolvency
experts have faced a lot of mudslinging in their direction in recent years.

Until now they’ve managed to keep their noses clean but it may be that the
mud is beginning to stick as the Office of Fair Trading has announced an
investigation into the corporate insolvency market.

The report is aimed at looking into fee levels and recovery rates, following
concerns about what’s returned to creditors and how much an insolvency job has
cost.

The main protagonists have issued fairly bland, straight-up responses to the
announcement from the OFT but there is a feeling that some of the bigger players
outside the Big Four could be more welcome of an investigation than the big
guys.

Ric Traynor, executive chairman of Begbies Traynor Group, said: “The group
believes that the majority of the market operates effectively and competitively
but would support any opening up of the market to competition for larger
insolvencies.”

If it is found that the largest firms charge too much for the returns they
secure, the endgame could be bigger, more lucrative work for the next tier. But
it is more likely that the OFT will also look at broader issues, beyond how the
Big Four operates.

With the Forum of Private Business already calling on the probe to look
closely at “phoenix companies” that ditch creditors then restart business under
a different name, it seems inevitable that the insolvency industry will be asked
many questions in 2010.

IN OUR VIEW

Practitioners take on great financial and legal responsibility when
dealing with an insolvent business, many of which have few assets to speak of,
making a decent return for creditors impossible. Those within the profession
grumble about exorbitant fees at the top of the market. But a concern is that
criticism by firms of other players in the market could cast a shadow on the
industry as a whole.