Government proposals on insolvency reforms could see creditors lose out when firms fail, the leader of North East trade body R3 has warned.
Allan Kelly – chair of R3, a partner with regional accountancy firm Tait Walker and head of its turnaround and insolvency team – has raised concerns over proposals on the returns that creditors get from businesses in distress.
Kelly’s warning comes as the Department for Business, Innovation and Skills publishes the results of a six-week consultation on the way in which insolvency fees are charged by the industry to firms and individuals.
Kelly heads up the North East arm of R3, the trade organisation made up of 97% of the UK’s insolvency practitioners. The consultation document includes many suggestions Kelly and industry professionals welcome, including changes which will enhance the regulation and oversight of the profession.
However, he said: “While we welcome the Government’s plans for improving regulatory oversight of fees and for boosting information for creditors, we have serious concerns about the suggestions for amending the way IPs’ (insolvency practitioners) fees are set, in the absence of engaged or secured creditors.
“We feel the Government’s proposals would have unintended and unwanted consequences, and would lead to the UK’s creditor community losing out were they to be implemented.
“More can, and should, be done to improve the way IPs report the value of their work to creditors, but we feel these proposals would hinder them from delivering value to creditors in the first place.”
The proposed changes would see limitations placed on IPs’ ability to charge by the hour for their work, with fees instead being based on a percentage of property dealt with or realised, or as a fixed fee, but Kelly believes the unpredictability of insolvency work would make such a constrained approach unworkable.
Kelly said: “Arbitrary measures such as enforced fixed-fee caps or setting fees as a proportion of realisations are not always compatible with the unpredictable nature of insolvency work. Both IPs and creditors would find them unfair, and both would routinely be left out of pocket as a result.
“The Government is justifiably proud of the fact that the World Bank ranks our insolvency regime as the seventh best in the world, ahead of France, Germany, or the US.
“UK insolvency practitioners bring back more money for creditors, and more quickly, than many of their counterparts overseas, but by jeopardising returns to creditors, we fear that some of these proposals would harm this ranking.
“The nature of insolvencies presents unique challenges when it comes to fees. R3 agrees these challenges should be looked at and we look forward to continuing to work with the Government.”