Bankruptcy experts accused of cashing in

Published on Thursday 6 January 2011 17:05

THE UK government is being urged to set up an inquiry into the insolvency industry, amid concerns that liquidation firms are collecting millions of pounds in fees at the expense of creditors.

• Farepak customers, led by former MP Jim Devine, protest outside the Bank of Scotland on the Mound in 2006. Picture: PA

The SNP say administrators are "making a fortune" as firms go to the wall as a result of the recession.

But industry leaders insist administrators have been able to save the jobs of hundreds of staff at ailing firms and point to a recent watchdog's report which gave the profession a "clean bill of health".

Christmas hamper firm Farepak collapsed in October 2006 owing 37 million to more than 119,000 savers. But the payout to administrators in this and other high-profile cases, such as the collapse of Zavvi and Land of Leather stores, have raised eyebrows among critics.

SNP business and enterprise spokesman Mike Weiris now demanding an official inquiry.

"The UK government must take a serious look at the workings of the insolvency industry, which appears to be raking in a fortune at the expense of creditors," Mr Weir said.

"It looks like another example of rip-off Britain and another failure by the UK government to regulate properly.

"After four years, victims of the Farepak collapse have been left with pennies while the administrators have walked away with millions, and this by no means is an isolated case."

About 50 businesses have been going bust every day as the economic downturn bites hard, the SNP says.

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Figures obtained by the Nationalists indicate that 16,554 firms went into liquidation over the past year, owing an average of 584,000 each.

That is more than three times as much as in 2006-7.

Almost 20,000 liquidations have also taken more then five years to complete. But R3, the professional body for business recovery specialists, insisted that practitioners were entitled to be "fairly paid", and offered to meet Mr Weir.

Scottish spokesman John Hall said: "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."He added: "We have previously offered to meet with Mr Weir and would welcome the opportunity to do so to discuss his concerns and dispel any misconceptions."

David Menzies, a director with insolvency firm Begbies Traynor, said a recent Office of Fair Trading Report into the insolvency profession largely gave it a "clean bill of health", while concerns over creditor engagement had been addressed.

He added: "There have been changes to regulations this year which allow creditors easier access to creditor meetings, so they don't have to physically attend and can attend by telephone or video conference, and all those sorts of things."

Insolvency practitioners are regulated by accountancy and law professional bodies, but critics claim they have no independence from the firms they regulate.

Practitioners must apply for a new licence every year.