IPs accuse OR of encroaching on bankruptcies

Realising non-cash assets

By Insolvency News, 16 November 2009. Posted in Personal

Private sector IPs have accused the Official Receiver's offices of stepping outside their remit in dealing with bankruptcies where there are realisable assets.

The Official Receiver should generally transfer bankruptcies an insolvency practitioner where there are assets to be realised. The exception to this has been where the assets consist solely of cash, or bank account contents, where the OR's regional offices would retain the case.  

Private sector IPs have claimed the OR has expanded its remit to work involving other forms of asset beyond and are intruding on the work of insolvency practitioners.

Neil Hickling, director of restructuring at Smith & Williamson, said: “When the regional centres were set up they were only going for the easy cash assets work then they started looking at the other cases with equity.”

He said his firm has had to shift focus onto corporate administrations which he believes is not an isolated case.

An Insolvency Service spokeswoman said: “It is wrong to say that the regional centres were created solely to take on bankruptcy cases where no assets are involved.”

“Where assets are straightforward, there is no obligation for the cases to be passed on, and our research has shown that, when cases ­ particularly bankruptcies ­ remain with the OR, they often achieve a much better result for creditors than similar cases which are passed to IPs.

“Complaints on this matter are rarely received, suggesting that this is a very minor issue.”

Comments What do you think?

  • Alan R Price | 15:36 16 November 2009

    More complaints might have been made if it weren't for the fact that IPs feel they would be banging their heads against a brick wall.

    Equally of concern is the way the OR operates the Secretary of State's rota for appointments as trustee or liquidator, which many perceive to be inequitable and grossly skewed in favour of three or four big firms.

  • Graham Sykes | 15:57 16 November 2009

    Oh dear is someone taking the IP's fees....what a shame! The gravy train is running slow. Join the real world

  • observer | 16:50 16 November 2009

    About time this issue was raised again. It feels like the Goverment wants all of personal insolvency to themselves.
    Can we have some figures on what the better return for creditors actually means. How can an easy realisation be better if there are other assets/transactions that never get investigated. I would love to know what assets go in and what they realise. I don't want a one case example I want to know the figures. Is it just me or is the Official Receiver failing to do what they do best. Enforcement!! Not asset recovery !!

  • IP | 17:04 16 November 2009

    OR is acting in the capacity of Regulator, Liquidator, Trustee, Keeper of the Rota, RPB, they oversee policy & to top it all off now deal with asset recovery! They don't take simple cases. They see one easy asset/target and go for it to the detriment of all creditors. I agree a little with 'Observer's' comments. Let the Insolvency Industry see you books & records !!

    Furthermore, what the Goverment is actaully forgetting is that by taking on these little cases and dealing with them in house they are ruining the small insolvency firms! I can see a time within the next ten years that there will be four Insolvency Practices in the country and the independents will be history.

  • Ginge | 07:48 17 November 2009

    I think that the OR should be able to get a better return for creditors in simple equity cases. There is no need to pass the case out to an IP. The problem with the way things are working is that IP's have traditionally sat on the rotas and taken a 'rough with the smooth' attitude. Unfortunately there only appears to be 'rough' cases being handed out and this will mean that IP's will start declining more and more appointments which will lead to an overall reduction in asset realisations and retunrs to creditors. It will also see the Insolvency Service workload increasing whcih will surely have an impact on their ability to deal with simple cases. I would be very interested to know how many properties have been lost on the 'three year' rule and I would also like to know what the Insolvency Service's reporting policy is on such matters.

    With a bit of luck and common sense the status quo will probably return. It is also worth bearing in mind that with the propery market being in the state that it is there is bound to be substantially less asset based estates in the hands of the OR's in any event.

  • Nigel Whitfield | 09:08 17 November 2009

    Neil's right and you can bet that the grab for the cash is at the expenses of contentious and speculative claims which an IP would not shy from.

  • Bust | 10:03 17 November 2009

    Of course, back in the day, the Insolvency Service always used to do a large proportion of its own realisations, and the OR's staff probably had a better idea of the commercial realities then, too. Some of the smaller cases are very hard to do economically by a commecial outfit they are done at a loss to the IP and no benefit to the creditors. If the OR can do them why not? They hand out a vast amount of dreck as it is.

  • inpartial... | 10:14 17 November 2009

    Having worked for both the OR and an IP i can honestly say... Tough. The amount of cases i have seen IP do nothing over. eg a bankrupt with no job paying £1600 a month in rent... or £230,000 recoverable with minimal effort. I dont see why IP's have cause for complaint. All they want is the assests to sell for their coffers.

  • Ark | 10:28 17 November 2009

    It is not a question of fees. The public has a right to expect that the IS is carrying out robust investigations into failures of court appointed insolvencies. Evidence suggests that is not so, with many cases being completed speedily with only a cursory examination - this is borne out by further evidence of IPs who discover "wrong doings" and report them to the IS only to be told that any action would not be "cost effective". In these cases IPs are best suited for finding assets leaving the investigations to the IS. Or is the whole move to keep cases with the OR a Government initiative to mitigate departmental costs?

  • Vexed | 13:01 17 November 2009

    The problem is a simple one. The OR thinks it's the king of Insolvency and dictates the rules to everyone else. I don't see them reporting generallly . The Regional Units (RTLU's) are just a big balck hole stuffed with assets. Take the cash etc and leave that dodgy transaction to the bankrupt's uncle's son a few years ago. It's a better return for creditors isn't it?

  • Fed up with Big Firms getting us a bad name | 21:54 17 November 2009

    Don't get me started about the inadequacies of the Insolvency Service! How many times do we spend thousands of pounds of creditors' money investigating and reporting suitable cases for disqualification or prosecution (because we are obliged to) only to have a letter back from the Insolvency Service saying it is not going to do anything about it? This happens even in cast-iron cases! They should put more resource into actually doing a proper investigation in those cases where it is required and taking IP's reports seriously, rather than keeping fee-paying jobs to themselves.

    And please, Mr Sykes, don't tar us all with the big firms' brush. There is no gravy train in small/medium provincial practices. We don't get involved in the mega-insolvencies where you can safely charge as many hours as you like with impunity.

  • Carl | 11:19 20 November 2009

    At the end of the day it is ultimatley the creditors that decide who deals with the realisation of the bankrupt's assets. If creditors have no preference, whose fault is that?

  • YELLOW BEARD | 14:07 20 November 2009

    I would make several points (long ones as usual) under three categories regarding the issue and the comments above…

    COSTS AND FEES
    I would say that these are the main arguments that support the suggestion that OR / RTLU are more efficient at realisations, unfortunately they collapse under detailed scrutiny.

    Firstly, the actual administrative costs of the OR are dealt with by a flat charge to every estate currently £1,625. These are still charged in full no matter what stage the case is handled over to an IP. Whilst some of the ORs functions are never the Trustees responsibility many of them are. Thus you have a double charge. Without going into detail about budgets and what have you, this effectively pays for all the preliminary investigations etc. that they are supposed to do. Many of these cases do not require investigations so those cases pay for those cases which do require investigation. In the few scenarios in which the actual charge out rates of the OR and his/her staff are relevant, they are charged out at rates that no private practitioner could maintain because they are supplemented by all the other charges.

    Secondly, the Secretary of State fee, 17% on all realisations (capped at £100,000), is charged to every bankruptcy including those that have been passed to the IP. So this again means that the estate must pay twice if the IP is to manage the realisation process.

    Thirdly, they only take the easy assets, whether that is cash or (as is more an more the case) other easily realised assets, it is obvious that such assets are going to be cheaper to realise than more complex cases.

    Fourthly, I should also mention that as debtor petitions are much greater in number than they used to be, a fair bit of money comes from a portion of the deposit which they pay to the court. Thus a large portion of ‘zero asset’ cases still provide funds to meet some of the costs of the OR’s administration.

    INVESTIGATIONS
    The huge increase in bankruptcy petitions, whatever the cause (lets not go into that), means that the OR is just not able to investigate actionable transactions to the same extent that an IP does. Their investigations are focused on BRO’s, which may indeed suggest that recovery actions could be taken in such cases, but I bet if put to the test they will confirm that despite having established that a bankrupt has failed to account for £x thousands of pounds they cannot demonstrate that any substantive investigations have been carried out by them into the existence of potential recovery actions.

    IPO / IPA
    On the other side of the coin, what they do provide is better realisations from income. Income Payment Orders or Income Payment Agreements are handled much more effectively by the Insolvency Service than IPs, particularly where contributions are small. This is of course partly because the IP is in the position of having to pay his fees and the 17%, but also because in small cases (which quite frankly an IP would not take) 17% of a small amount is a lot less than an IP can realistic charge. E.g. take a 5 year agreement with total realisations of £5,000. The secretary of state fee is £850.


    QUESTIONS
    All of this leads to three questions

    1. How can you compare the costs of realising simple assets with complex assets?

    2. How can an IP every give a better return to creditors when lumbered with a 17% burden (they would have to realise more than £588k before they are able to charge just there own fees)?

    3. What do creditors actually get out of the investigations that the OR carries out, and how thorough or otherwise are these investigations?

    ON A SIDE NOTE
    I must point out that much of the work the OR does is actually very good. Even the investigations are, sometimes, quite admirable. Yet they lack some important aspects, commerciality and creditor interest (I don’t want to go into the arguments about public interest and BRO’s’).

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