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OFT launches insolvency fee investigation

Insolvency advisers, who are brought in to help rescue or wind up collapsed companies, are to be scrutinised by the consumer watchdog after the Government and industry raised concerns over the size of their fees.

The Office of Fair Trading (OFT) yesterday announced it was to launch a study into corporate insolvency in the UK, over fears of market failure.

Clive Maxwell, the OFT senior director of services, said: "We want to identify any potential problems within the corporate insolvency market to ensure that firms and practitioners are competing freely and that the market is working well for the end-consumers."

The investigation will look at the structure of the market, the appointment process for insolvency practitioners – who range from the big four accountancy firms to "one-man band" advisers – and "any features in the market which could result in harm".

This includes higher fees or lower recovery rates for creditors. The move was prompted by industry concerns as well as those from the Government – including the Insolvency Service, an executive agency of the Department for Business, Innovation and Skills.

The OFT yesterday pointed out, citing a recent World Bank report, that the cost of closing businesses in the UK is higher than other countries with similar or even better recovery rates.

Yet Steven Law, the vice president of the trade body for insolvency practitioners, R3, queried the numbers, saying that fees in the UK were about 6 per cent of the estate, which was lower than countries including France, Germany and the US. "Our fees are agreed with the creditors," he said, adding that the investigation came as a surprise.

Corporate insolvency covers formal procedures including administration, receivership, liquidation and company voluntary arrangements. The inquiry will not include personal insolvency.

The OFT plans to question accountants, law firms, trade bodies, regulators and the Government. If it decides to move to a second phase after the initial consultation, it expects to complete by the end of next year.

Possible outcomes range from enforcement action and a referral of the investigation to the Competition Commission, to giving the industry a clean bill of health. This comes the day that the Insolvency Minister, Ian Lucas, backed the Insolvency Service consultation on encouraging company rescue. Mr Lucas said despite the difficult current conditions "the existing statutory framework for company rescue is performing well, and continues to compare well internationally."