OFT is probing bust firms ‘rip-offs’ by accountants

The big firms of accountants could be ripping off the British economy for million of pounds a year by charging high fees when dealing with companies that go bust.

That is the conclusion of the Office of Fair Trading, which today launched an unprecedented investigation into the corporate insolvency market, a market that earns the accountancy profession led by PwC, KPMG, Deloitte and Ernst & Young tens of million of pounds a years in fees.

The investigation by the OFT follows behind-the-scenes complaints from officials at Lord Mandelson's Department for Business and the government's Insolvency Service, which oversees corporate and personal bankruptcies.

The accusation is that insolvency practitioners, typically qualified accountants, charge high fees and are guilty of low recovery rates of money owed to companies' lenders and other creditors, typically Revenue & Customs and business suppliers.

In a statement launching a market study, the OFT said: "The study will look at the structure of the market, the appointment process for insolvency practitioners and any features in the market which could result in harm, such as higher fees or lower recovery rates for certain groups of creditors."

The OFT, under chief executive John Fingleton, is gaining a reputation for its aggressive clampdown on industries which have previously escaped exposure to competition investigations.

It said its probe has been prompted by accusations that UK insolvency arrangements are worse than in any other mature economy.

It said: "A recent World Bank report showed the costs of closing a business in the UK are higher than other countries with similar or even better recovery rates. A report by R3, the trade body for insolvency practitioners, also highlighted the cost of insolvency as a relative weakness of the UK's regime."

Corporate insolvencies are running 14% higher than a year ago and there is widespread belief many more companies will go bust before the British economy recovers from recession.

OFT senior director Clive Maxwell said: "We want to identify any potential problems within the corporate insolvency market to ensure that firms and practitioners are competing freely and that the market is working well for the end consumers. Efficient insolvency services are an important component of a modern market economy."