OFT Slams Insolvency Service

The insolvency profession and particular the role of insolvency practitioners (IPs) has come in for some serious criticism from the Office of Fair Trading (OFT), after a 7 month study of the market. Clive Maxwell, the OFT Senior Director of Services, said: “Self-regulation has not worked. We have called for some fundamental changes so that bad behaviour can be better constrained by fear of regulatory punishment and fines. Our recommendations would benefit the wider economy and good insolvency practitioners, without imposing on the taxpayer.”

One of the major issues highlighted in the OFT report was the level of IPs fees in comparison to the level of realisations and therefore dividends to unsecured creditors. This has always been an area where unsecured creditors see themselves being left behind while the IPs fees take preference.

In reality probably a few bad apples in the insolvency community have meant the whole profession being tainted with the expensive undertaker badge and the vast majority of IPs would welcome a more robust regulatory framework.

Specialist firms like Beer & Young have worked closely with IPs for many years and their experience has generally been very positive, particularly where an insolvency process was required as part of an investor backed turnaround solution. Inevitably the baggage of the past is sometimes prohibitive for an investor to simply ‘pick up the tab’ and a re-structuring process needs to be utilised.

The real key is working with all the stakeholders, including unsecured creditors, to make sure the business has the maximum chance of success in the future. It is crucial for SMEs to engage with firms like Beer & Young no matter how distressed things might seem and they will focus on the positives. An insolvency process may be necessary but this can merely be a stepping stone to a positive future, particularly with new investment being provided as part of the recovery solution.