Predatory accountants are closing down viable firms for fees, say MPs

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The Independent Online

Viable businesses are being forced to close and their assets sold at less than their real worth by insolvency firms charging inflated fees, a group of academics and MPs have claimed.

Viable businesses are being forced to close and their assets sold at less than their real worth by insolvency firms charging inflated fees, a group of academics and MPs have claimed.

In a study published this week they say businesses which are unhappy with the way they are treated often find they cannot get proper redress because the insolvency trade regulates itself.

The Association for Accountancy and Business Affairs is calling for urgent reform, including the appointment of an independent regulator to oversee the industry.

It highlights the experiences of a 150-year-old Manchester firm that paid almost £1m to its administrators out of £1.35m surplus left after its assets were sold, and those of a woman with assets of £550,000 who was made bankrupt while she was in hospital because of an unpaid bill of £4,430.

The report, which calls for higher standards in the accountancy profession, also details the case of a jeweller who saw stock valued at £35,000 sold for £3,000 and who found pearls and gemstones among rubbish piled on his workshop floor after a liquidator's sale.

Receivers appointed to pursue the assets of the newspaper tycoon Robert Maxwell after his death were criticised by a judge in 1998 for charging fees of £1.63m for realising assets of £1.67m.

The report found several cases in which consultants were appointed by banks to look into firms' finances and who were then appointed as receivers after painting a gloomy picture in their reports. Among them was an asbestos removal business with 40 employees, a full order book, a projected turnover of £1m and no history of bad debts whose owners saw their homes and personal possessions sold off because they had provided personal guarantees for their business.

The report claims that with just 1,200 active insolvency practitioners in the UK, a small group of people wields enormous power. Those practitioners are regulated by their own professional bodies, mainly the Institute of Chartered Accountants in England and Wales and the Insolvency Practitioners' Association. Although those bodies are overseen by the Department of Trade and Industry it will only scrutinise whether correct procedures are used and will not get involved in the detail of individual cases.

Labour's business manifesto for the 1997 election promised "independent regulation", but a government working party set up later that year rejected the notion of an independent "stakeholder" body as "impractical" and instead proposed a new Insolvency Practices Council consisting of six lay members and three insolvency practitioners.

This week's report was written by two Labour MPs, Jim Cousins and Austin Mitchell, with Prem Sikka, Professor of Accounting at the University of Essex. Mr Mitchell, who is MP for Great Grimsby, said he would continue to campaign against the Government's proposals. "You can't trust the Mafia to tell the truth about the Mafia," he said.

David Kerr, manager for insolvency regulation with the Institute of Chartered Accountants in England and Wales, said the complaints detailed in the report had been fully investigated and some files had been made available for scrutiny by the DTI's insolvency service.

"The working party concluded that an ombudsman was not appropriate for insolvency... Clearly it is too early to assess the effectiveness of the new body," he said.

A spokesman for the Department of Trade and Industry said a working party onthe regulation of insolvency practitioners was still looking at the issues.

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