LETTERS Wimps avenged
Sir: Michael Lewis, in his waspish article (`Revenge of the wimps', 20 April) was entertainingly scathing about the rapacious 'self-regulated cartel of insolvency practi- tioners in the UK'. In particular he claimed that 'what insolvency accountants are paid has less to do with market forces than with the structure of the profession'.
Virtually everyone involved with a bust company loses something — jobs, money, customers and self-esteem. The payment of a fee to an insolvency practitioner for clearing up the mess is an emotive issue and legislation has been in force since Victorian times to regulate these fees. Over 80 per cent of insolvencies are liquidations rather than receiverships and in all material cases the liquidator is not entitled to any fees without the specific approval of an elected committee of cred- itors. He must persuade those who have already lost money that he deserves his fee. Every pound of his fee is a pound less for the creditors.
Contrary to the impression that might have been gained from Michael Lewis's article, in this recession in the vast majority of receiverships the bank does not obtain full repayment of its loan. (The UK bad debt provisions of the Big Four banks totalling about £3 billion is one indicator). In these cases a receiver's fees merely add to the bank's loss; banks have therefore to be satisfied that they are getting value for money and, like a liquidator's creditors' committee, can always say no.
Any one of the 2,000 licensed insolvency practitioners can be chosen by the banks or creditors for the next job. Market forces are very relevant.
Does it really represent 'a monopoly more absolute than any enjoyed by the former nationalised industries' when the market has a free choice in, for example, Reading between 12 reputable insolvency firms? The profession enjoys a monopoly, but competition within the profession is intense. The same charge could be laid at the door of lawyers, auditors, teachers, doctors, independent financial advisers or (newly regulated) estate agents. Nothing prevents anybody capable of satisfying the regulatory requirements laid down by Par- liament from setting up his own stall in competition with the rest of us. The alternative is a return to the unregulated mayhem of the 1970s and early 1980s, and an acceptance that the occasional cowboy practitioner is going to absent himself from the country with a suitcase full of creditors' money.
Few of our members are likely to be on the poverty line. A chartered accountant, who now will necessarily be a graduate, wishing to take insolvency appointments must undertake a minimum of two years' post-qualification training. Four years is more realistic. He can then attempt an examination with a 20 per cent pass rate. After getting on for a decade of training he will get a few `try-our jobs, out of which he will earn minimal fees, and can start to develop his career. He might ultimately enjoy fairly generous rewards for his efforts — but to say we 'can earn up to £400,000 a year' is like saying that com- pany directors can earn up to £5 million a year: a perfectly true statement, but devoid of meaning. It is also true to say that an increasing number of our members are not ordinary accountants who have undergone some sort of Pauline conversion, but de- cided on a career in insolvency at the outset.
Two last points. Unemployment is only marginally 'a result' of insolvencies; most is caused by large employers laying off staff or cutting recruitment. Finally, thank you for highlighting the need for more work- able rescue procedures. Our members said in 1986 that the legislation was unlikely to work in all but a few cases, and they are saying the same now. This issue, surely, should be at the centre of the debate.
Space does not allow me to deal with any other of the points raised in the article, nor with the constructive role of *impish' insolvency practitioners saving companies and rescuing businesses.
I. D. B. Bond
President, Society of Practitioners of Insolvency, 18-19 Long Lane, London EC1
Previous page
