Yorkshire MP calls for tougher stance on 'Wild West' insolvency industry

The all-party parliamentary group on fair business banking states that changes must be made urgently after it investigated a “steady stream of complaints” lodged against insolvency practitioners and was presented with “startling” evidence.

Kevin Hollinrake, who is co-chair of the group and MP for Thirsk and Malton, said: “Sections of the UK insolvency industry are operating in a manner that is more akin to the Wild West than a developed Western economy.

“Too many insolvencies descend into little more than an asset grab by the parties who hold the levers of power. Whilst we accept that elements of the industry are upholding standards, financial rewards are corrupting the very basis on which the industry is supposed to operate."

There are around 1,600 insolvency practitioners in Britain and they have the power to seize and sell assets, remove directors from their posts and compel people to attend interviews.

In a report, the APPG said they often protect the interests of the bank or creditor that has the power to appoint them, rather than the interests of the company facing insolvency.

It states that practitioners are willing to “sell their independence, and their considerable powers, in return for an appointment” and many “view their court appointed powers as little more than a commodity to be sold to the highest bidder”.

Rescuing a struggling business should be their “primary goal”, the report adds, but this almost never happens because that objective is “often ignored” and they usually look to “help the strongest creditor collect what they can”.

It also states Recognised Professional Bodies are required to regulate the practitioners, who pay to be members of their organisations, and this system of self-regulation “fails to sanction many misconducts”, as almost 8,000 complaints were lodged over 10 years but only five practitioners lost their licences.

The inquiry also highlighted a lack of action from some insolvency practitioners and their governing bodies during several recent scandals, including one involving HBOS Reading.

Over seven years, consultants claimed they were helping turn around small businesses while plundering millions of pounds of money and assets. Around half of the 70 businesses went through the insolvency process and licensed practitioners were appointed but the all parliamentary group criticised their “apparent failure to identify the ongoing fraud”.

The MPs are now calling for a ban on appointing a practitioner where there is a clear conflict of interest, an independent regulator and ombudsman, and a centralised database to record the outcome of each administration.

They also say the law should be changed to prevent practitioners from discussing pre-agreed administration strategies with appointing creditors and encourage them to show that “all practical avenues to rescue have been explored” before a company is made insolvent.