“The insolvency industry is the ‘Wild West’ of our time”
Prem Sikka is Emeritus Professor of Accounting at the University of Essex and the University of Sheffield, a Labor member of the House of Lords and Editor-in-Chief of Left Foot Forward.
Various forms of government support for Covid-related businesses have ended and temporary restrictions on creditors initiating insolvency proceedings have been lifted. The inevitable result is an upsurge in corporate bankruptcies leading to the loss of jobs, pensions, savings and investments.
Misery for many is a boon for insolvency practitioners. The UK has around 1,570 licensed Insolvency Practitioners (NPs), of which around 1,288 are active appointment takers. Most work in accounting firms. All corporate and personal insolvencies should be handled by an IP. This is a state guaranteed license to print money. Rather than quickly terminating bankruptcies, IPs take years and continue to charge fees.
The Insolvency Department, an executive agency of the Ministry of Business, Energy and Industrial Strategy, is responsible for regulating the insolvency sector. This has been delegated to four professional associations known as Recognized Oversight Bodies (RFOs). These are the Chartered Accountants Ireland, the Institute of Chartered Accountants in England and Wales (ICAEW), the Institute of Chartered Accountants of Scotland and the Insolvency Practitioners Association. They have no independence from their members and are experts at sweeping things under their dust-laden carpets.
The insolvency industry is the ‘Wild West’ of our time where innocent people are abused, corrupt practices flourish and city sheriffs team up to cover up. A recent report by the All Party Parliament Group (APPG) on Fair Trade Banking Services found that abuse is rife. He spoke of âIPs’ willingness to sell their independence, and their considerable powers, in exchange for an appointment in an insolvency case. â¦ IPs see their court-appointed powers as little more than a commodity for sale to the highest bidder â.
Sally Masterton’s report, codenamed Project Lord Turnbull, was written in 2013 and officially released in June 2018 by the APPG on Fair Business Banking. He documented some of the frauds at HBOS, which could not have been carried out without the complicity of the insolvency practitioners. There was no investigation.
BHS went into receivership in April 2016, followed by liquidation in December 2016. Five years later, the liquidator continues to earn fees. Carillion collapsed in January 2018 and the end of the insolvency is not in sight. PricewaterhouseCoopers helping the official receiver are expected to collect fees of over Â£ 100million, leaving almost nothing for unsecured creditors. Comet, an electrical appliance store, collapsed in 2012 and its liquidators, Deloitte’s insolvency partners, charged up to Â£ 1,125 an hour for insolvency work. The insolvency is still not finalized.
As of October 2020, some 7,962 business bankruptcies had been ongoing for 5 to 9 years and were incomplete, the figures outstanding for 10 to 14 years and unfinished were 3,642. 14,328 had been operating for more than 15 years, allowing IPs to milk them for exorbitant fees. There is no investigation into delays or excessive fees. The long-suffering public cannot even demand information because BRPs are excluded from the freedom of information law.
Over the past 10 years, some 8,000 complaints about excess insolvency practitioners have been lodged with OPIs. Only five insolvency practitioners have had their licenses revoked. The regulatory system is apt to deceive people and many give up due to obscuration and exhaustion.
One of the recent high-profile insolvency cases concerns the collapse of Silentnight. Following pressure from the pension regulator and the pension protection fund, the Financial Reporting Council, instead of the RPBs, investigated the collapse. Its report says KPMG and its insolvency partner pushed Silentnight, one of the firm’s clients, into insolvency so that private equity firm HIG, a client coveted by KPMG, could buy out the company. business administration at a lower price by giving up pension obligations to employees. . About 1,200 workers lost part of their pension rights. KPMG increased its profits, its partners got richer.
The insolvency partner was found to be a âliarâ. KPMG and the ‘lying’ partner were fined Â£ 13million and Â£ 500,000, respectively, as well as investigative costs of Â£ 3million. The partner has been excluded from membership in ICAEW for 13 years.
However, in the world of insolvency smoke and mirrors, all is not what it seems. Partnership agreements usually state that the company would pay the fines, which is all the more likely because KPMG has taken advantage of deceptive behavior. The partner was probably on the verge of retirement and will have a huge retirement pot. He will make a fortune by selling his status as a partner and will probably become a consultant to the firm. Not a penny of the Â£ 13million fine will be used to compensate workers who have lost their pension rights. Instead, he goes to the ICAEW who cleared the lying partner. A reward for nurturing incompetent IPs. KPMG is still in negotiations and its partner has not been subject to any criminal penalties for stealing pension rights from Silentnight workers.
Corruption is institutionalized in the insolvency sector and a public inquiry is long overdue. The replacement of the four BRPs by an independent regulator is a necessary reform with an independent mediator to settle disputes. IPs should have a âduty of careâ to stakeholders and their cases should be open to everyone to assess their due diligence.
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