By a Newsnet reporter
The SNP has demanded an investigation into the UK’s insolvency industry after it emerged that administrators may be cashing in at the expense of creditors.
Questions posed by the party’s spokesperson on regulatory reform, Mike Weir, revealed that some claims took decades to resolve with some victims dying without ever receiving compensation.
The staggering scale of the situation was reinforced by parliamentary questions tabled by Mr Weir in the House of Commons which reveal that there are more than 19,500 liquidations started over five years ago that have not yet been finalised, and a staggering 6,629 outstanding cases that have been waiting at least twenty years.
Mr Weir discovered that liquidations have no statutory time limit and the level of fees charged by insolvency practitioners is not regulated.
Some cases took as long as 35 years to conclude. The Israel-British Bank, which entered liquidation in 1974, was only finalised in September 2009.
Holiday firm Apal Travel which went into liquidation in 1974 only finalised in August 2009, by which time some of the holidaymakers entitled to receive the 74p in the pound settlement had probably died.
Mr Weir’s concerns were sparked over delays and the level of compensation for the Farepak victims – the Christmas hamper firm collapsed in October 2006 owing £37m to nearly 120,000 savers.
More than five years later, savers are likely to recover just 5p in the pound, while the final bill for the administrators and their legal advisers has already exceeded £8 million.
But Farepak families are not alone in losing out, with Mr Weir warning that the insolvency gravy train is an opportunity for the administration industry to make vast sums out of the problems in the economy.
High Street and high profile examples include:
– Zavvi, the music retail chain which went into administration in November 2008, owing unsecured creditors nearly £185m – including 510,000 unredeemed vouchers worth an estimated £4.1m. Creditors are just receiving 15p in the pound, while administrators Ernst & Young collected millions in fees.
– Furniture chain, Land of Leather, went into administration with debts of £37m in January 2009. Creditors received just 9p in the pound, while administrators Deloitte and Touche collected fees of £2.5m.
Last week restructuring firm AlixPartners warned that insolvencies in the UK retail sector may reach the highest level in four years.
“We are likely to see a number of retail collapses early in the new year and it could include some much-loved names,” Sanjay Bailur, managing director of the advisory firm’s U.K. unit, said in an interview. The outlook is “worse than the last three or four years.”
Commenting, Mr Weir said:
“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. It looks like another example of rip-off Britain, and another failure by Westminster to regulate properly.
The SNP MP attacked the “pennies” offered to Farepak victims and contrasted it with administrators who he said had “pocketed millions”. Mr Weir described the industry as a “gravy train” that had arisen through a lack of regulation.
“Just like the banks, current UK insolvency regulation has failed. Part of the problem seems to be that the industry is largely self-regulated.
“Insolvency work is handled by licensed practitioners, most of whom work for accountancy firms. The practitioners are in turn regulated by accountancy and law professional bodies, which have no independence from the firms they regulate.
“What’s more, there is no independent complaints investigation procedure or ombudsman to adjudicate on malpractices – there are no questions over fees or delays.
“This is clearly a pressing issue in the current economic climate and the UK Government must not shy away from investigating the insolvency industry and taking action. We know only too well from the banking crisis the cost of doing nothing.”