Tuesday, 15 December 2009

"The Business of Bankruptcy" - IPs hammered by More4 News

AHH! Companies cannot go bankrupt in English law. That legal state is reserved in England and Wales to natural persons. That mini-rant aside, the More4 News story on Insolvency Practitioners (IPs) allegedly profiteering from insolvent estates is now live on their website. It makes interesting viewing (and reading). See "Reaping profit from insolvency."

The news item does not however make for balanced journalism. This is because the authors/presenters do not seem to take account of the concept of value for money. They have taken a simplistic approach to both the overall figure of IP earnings over the last two years (some £2 billion allegedly - where is this figure from?) and also to the hourly rate point. A partner, let's call him Dave (a tax partner advising on complex tax issues), may well charge £750.00 per hour, but that work might actually represent good work which represents value for money. The journalist seems to have failed to examine what the charges actually related to. What has Dave done in that hour? If Dave has saved the insolvent estate £2,500,000 due to his unravelling of a tricky tax point, then that is not a bad use of £750.00 in anybody's book.

The second major point relates to compliance. Insolvency is a heavily regulated sector. Compliance costs the creditors money. It is incumbent on MPs to explain to creditors why the laws that they legislated for are so costly to administer. The IPs did not create the legislative environment. MPs and Peers did. The Insolvency Rules 2011 herald yet another change and further cost for IPs. This will eventually be borne by creditors, but the catalyst for change does not sit with IPs. One could argue that IPs are not to blame for any current dissatisfaction, but that legislators are for promulgating the environment in which IPs are forced to operate. That is of course if you accept that there is in fact anything afoot with the status quo in terms of charge out rates.

Picture Credit: http://upload.wikimedia.org/wikipedia/en/thumb/d/dd/More4_News_title_card.jpg/250px-More4_News_title_card.jpg

1 comment:

Stephen Hunt said...

I fully agree with your arguments about hourly rates. I have been running a number of remuneration cases through the courts.

In Yearwood-Grazette I asserted that proportionality meant that an IP should not spend significant sums justifying smaller bills, especially where the bankruptcy had a surplus and the bankrupt would therefore bear the costs of the exercise (I lost)

In Freeburn v Hunt I explored what constitutes compliance with the Practice Statement 2004 and also the effect of making offers to creditors in advance of the hearing (I won)

The next case will explore the concept of the hourly rate and whether the tests set out in the legislation are to be taken literally by the courts. I am seeking in effect a 300% uplift on a high risk no win, no fee fraud claim that recovered millions for creditors. I think this case may seek answers to the points raised in your first paragraphs.

I cannot however agree with any of your second point. IPs are not heavily regulated. During the course of my work I have had reason to examine every aspect of regulation of IPs and the results are not good. Whilst we have improved greatly since 1986, in many ways we haven't moved forward at all. Your paragraph could have been written in 1991 and is the usual point that is trotted out.

My research concludes that we should be regulated as least as tightly as lawyers because of the nature of the work we do. We hold large client funds and have many ethical challenges. When an IP turns bad, the regulator cannot intervene to protect client funds and only once the successor practitioner is appointed can steps start to protect assets and documents.

There is an argument for regulation that is even tighter as lawyers have clients to control them on a daily basis whereas we have creditors whose interest soon wanes. However, for now, regulation by the SRA or under their rules, would force us to meet their level of professionalism. When we have achieved that, we can consider going further.

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