Insolvent, underground and digging in the dark !

I may be digging in the dark but I know a rat when I smell one and some of them are insolvency practitioners (IPs) cleaning up in the current rush for voluntary arrangements as an alternative to bankruptcy. When an IP starts selling voluntary arrangements (IVAs) as a 'lifestyle choice' it is a certain bet that the only lifestyle that they are enhancing is their own.

Insolvency Practitioners are of course entitled to charge a professional fee but how much is appropriate ?

Some IPs quote a fixed fee for providing an IVA but that may not be written into the Proposal and, even if a fixed fee is written in, that's no guarantee that the IP will not take more. My creditors had reluctantly written a limit of £14,500 into my arrangement and, to date, my IP has taken £27,000 and I have spent two years fighting through the courts to recover that money for my creditors.

My case is probably exceptional but fees running into many thousands are not unusual.

But why charge so much ? IVAs are not rocket science. In most cases the work is more or less over in the early stages and it's simply a question of gathering information from the debtor; amending a template Proposal provided by their trade association and offering the proposal to creditors.

Then the IP follows a number of fairly straightforward steps to make sure everything is set up in accordance with the law - Section VIII of the Insolvency Act and the Insolvency Rules - up to the creditors meeting.

Once the IVA has been approved, it is then a question of agreeing all of the creditors' claims made against the voluntary arrangement and from there on it becomes a very inexpensive book-keeping exercise.

The debtor pays money in every month and the IP takes his fees and, if there's enough left in the kitty, some money is eventually paid out to creditors as a 'dividend' based on a proportion of the money owed to them.

It's not rocket science but this is where insolvency practitioners charge for doing very little. A very junior employee does the basic work and it's only necessary for the IP to sign another (proforma) annual report and statement of accounts. Copies are then sent to creditors and they are also filed with the County Court that is supposed to have jurisdiction over the arrangement - but the courts never look at the reports. They are quite simply filed.

And there lies the problem - and the reason for this blog - this 'regulated profession' is not directly regulated by anyone despite the fact that IPs are given statutory protection from civil legal action. This statutory protection is open to exploitation by unscrupulous, incompetent, lazy, negligent and sometimes barely qualified insolvency practitioners and the losers are vulnerable debtors and the creditors who also end up not receiving money due to them.

The mole will be scratching away to cast light on this darker side of insolvency.