A price for going bust

ACCOUNTANTS will have to provide estimates of how much a receivership or administration will cost before they are appointed, under a new initiative being led by Royal Bank of Scotland, write Jason Nisse and John Willcock.

In many cases more than one firm will be asked to tender for an insolvency before the bank makes the appointment.

The initiative is aimed at keeping down the spiralling costs of receiverships - which in the cases of BCCI, Polly Peck and the Maxwell empire have run into tens of millions.

The move, which has emerged since the appointment of Derek Sach, the former director of 3i, as head of Royal Bank's problem loans unit, has already received the support of Bank of Scotland and many foreign banks, but has not gone down so well with the insolvency profession.

Keith Goodman, senior partner of the specialist involvency accountants Leonard Curtis, said that if firms have to tender for work there is a risk of them trying to undercut each other and then cutting corners to keep within the estimates. 'It is very difficult to know how long a receivership will take and how much it will cost at the start.'

Another leading insolvency practitioner agreed: 'In most receiverships the easiest realisations are the first 70 per cent. The receiver has to put in quite a lot of resources to recover the last 30 per cent. Quoting might reduce the amount of assets that are recovered. There is a danger that banks will end up getting what they pay for.'