Insolvency fees fall under bank's quote rule

SUBSTANTIAL cuts in the costs of winding up bust companies are being achieved by Royal Bank of Scotland in a campaign against excessive fees among insolvency practitioners.

Derek Sach, director of specialised lending services at RBS, said 'significant' progress had been made in driving down fees since the bank started requiring practitioners to quote fixed fees before appointing them.

The bank has also abolished the link between investigating accountants and those subsequently appointed as receivers. Mr Sach felt 'instinctively' that this had reduced the number of receiverships among RBS clients.

Cases such as BCCI, where the liquidators Touche Ross charged fees of dollars 133m between the bank's collapse in July 1991 and this January, have prompted creditors to demand lower costs. So far, only RBS has gone public in demanding quotes for receiverships.

RBS also thinks it has found a way of cutting the number of companies that go bust. Currently, banks send in investigating accountants to problem companies, and if the accountant recommends receivership, he is appointed receiver as a matter of course.

This industry-wide practice is vigorously defended by insolvency accountants for its convenience, but many businessmen have complained that investigating accountants have been foisted on them by their banks, only for the accountants to recommend receivership and collect the lucrative insolvency fees involved. Mr Sach said many clients 'firmly believed that they had been stitched up from day one'.

RBS now requires investigating accountants who recommend receivership to hand the winding up to another firm, putting pressure on them to find a rescue plan rather than pull the plug.

The RBS initiatives have drawn a wary response from insolvency accountants. Tim Hayward, head of corporate reconstruction at KPMG Peat Marwick, said 'most banks would feel the cheapest way is not always the best way to get back the most money for creditors'.

Chris Hughes, London senior insolvency partner at Coopers & Lybrand, said that asking for quotes 'was not helpful - but there may be some circumstances where it would be appropriate, such as when there is a single asset to be sold, like a property'.