OFT calls for more creditor protection

COMPETITION watchdog the Office of Fair Trading yesterday called for major reforms to corporate insolvency rules to better protect creditors, writes Perry Gourley.

A seven-month probe by the OFT discovered that banks often control company administrations and insolvencies, leaving unsecured creditors with little say in the process.

The OFT is now recommending "fundamental changes" to the system, which it believes fails to protect the interests of small creditors such as customers and small businesses.

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It discovered that banks and secured creditors – those paid first in the queue once a company is wound up – have a direct incentive to control insolvency firms and their fees, but are uninterested once they have been repaid. This can lead to lengthy and expensive insolvencies for other creditors. Small creditors are often left "insufficiently represented and protected", while many insolvency procedures are also overly long in a market worth some 1 billion a year to insolvency practitioners.

The OFT also wants to see an independent complaints body created to review fees.