The result is that unsecured creditors are hit with higher fees and lower returns in insolvencies compared to when secured creditors are involved in the process.
The OFT report demonstrated that the fees charged by Insolvency Practitioners are 9% higher when the secured lenders recovered all of their debts, compared to when the full debt was not recovered and banks still have a vested interest in exerting pressure to reduce IP fees. In situations where banks have recovered all of their debts, the unsecured creditors are reliant on regulation and the ethics of the Insolvency Practitioner to act in their best interests – a much weaker position – as the costs of getting involved are perceived to outweigh the benefits.
The OFT recommended that the disadvantage of unsecured creditors in this situation be lessened.
Another of the OFT’s recommendations is to change the regulation of IPs in order to provide creditors with greater confidence that IPs will be held to account for their actions. The BPF has long held the belief that the regulation of IPs needed to be strengthened as currently there are too many regulatory bodies which are too ineffective at policing the system.
Ian Fletcher, Director or Policy (Real Estate) said:
“Since the start of the recession, landlords have been buffeted by a number of high profile insolvencies. In the main, the majority of these insolvencies have been successful, due in part to landlords commitment to see successful retail businesses weather the storm. However, that is not to say that changes don’t need to be made, especially around IPs fees and the extent to which they are held to account by their professional bodies. We are therefore pleased to see the OFT highlight these areas as needing to be addressed and we urge the Department of Business to act on them.
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