Eye-wateringly high fees and controversial pre-packs: the murky world of administration

Trying to find out how much an insolvency practitioner (IP) actually charges is like trying to find out what is happening in North Korea. It’s a near impossible task. However there are some pointers such as anecdotal accounts about exorbitant fees and stupidly high costs and even a Government survey made in 2014 that estimated some eye-wateringly high hourly rates.

Just for the record (and this was six years ago) they were on average £366 for a director, £253 for managers, £182 for senior staff and £103 an hour for assistants such as secretaries. The so-called big four and other large firms had fees estimated around the £800 an hour mark which today would be somewhat higher. Then there are costs such as photocopying, letters, meetings, travel and accommodation and other expenses which can be charged and itemised.

The vultures descend

Anecdotally ICSM Credit often hears of practices that are highly questionable if not from a legal point of view then at least from a moral one.

“When a firm becomes insolvent it can be that the vultures descend,” said Ian Carrotte of ICSM Credit, “the first thing any insolvency practitioner will assess is whether there’s enough cash in the collapsed company to pay their fees. The banks usually are secured creditors while the taxman will usually get the lion’s share of what they are owed leaving the unsecured suppliers with what’s left.”

This spring there is an unprecedented number of firms entering administration due in part to the Covid-19 crisis, the lock down, economic collapse and long term trends affecting in particular retail, printing and hospitality. Companies sliding into insolvency should seek legal advice over their future and if administration is the answer then the owners need to appoint an administrator. Preferably one who is committed to saving the business or finding a buyer so it can live to fight another day. Cath Kidston and Laura Ashley are two examples in the last few days – but they have a brand name which is of value. Anecdotally ICSM Credit hears about IPs being chosen because of their relationship with the troubled firm. This can be positive in one sense as they will know the business and its strengths and weaknesses but it can also be a route for some dubious deals such as the selling of assets to newly created companies owned by the owners of the collapsed enterprise.

Highly questionable practices

Another controversial area is the one of pre-packs in which a firm is sold as a going concern keeping the staff and assets but dumping the debt including in some cases the pension scheme and the workers' back pay. The pre-pack pool set up by the Government only scrutinises a small number of these deals as they do not have the power to check all pre-packs – and that has led to criticism of some pre-packs as being ‘stitch-ups.’ Again it is the unsecured creditors who lose out.

In defence of IPs no single administration is the same with numerous variables and legal complications. And there's the issue of some directors trying to cover their tracks with angry creditors demanding to know why a company failed.

But with so many firms hitting the buffers and choosing administration it has meant the Covid-19 crisis is effectively open season for insolvency practitioners – one part of the economy that is having a good 2020.

For more on how an administrator works and what will happen once they are appointed go to the Government’s website at https://www.gov.uk/government/organisations/insolvency-service

ICSM Credit

For details about ICSM Credit call 0844 854 1850 or visit the website www.icsmcredit.com or email Ian at Ian.carrotte@icsmcredit.com on how to subscribe and to join the UK’s credit intelligence network to avoid bad debts and late payers. Follow ICSM Credit on FaceBook, Twitter and YouTube and Ian Carrotte on LinkedIn.

To keep up to date subscribe to the FREE ICSM Credit Newsletter to hear all the latest insolvency news and to see who has gone out of business click on the orange panel on the top left of the home page of the website www.icsmcredit.com or send an email to Ian.carrotte@icsmcredit.com

For details for the work of the journalist Harry Mottram visit www.harrymottram.co.uk