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Royal Assent
10.29 pm
Mr. Deputy Speaker (Sir Alan Haselhurst): I have to notify the House, in accordance with the Royal Assent Act 1967, that the Queen has signified Her Royal Assent to the following Acts:
National Health Service (Private Finance) Act 1997
Southampton International Boat Show Act 1997
Imperial College Act 1997
It being after Ten o'clock, Mr. Deputy Speaker, pursuant to Standing Order No. 55 (Questions on voting of estimates, &c.), put the Question on the total amount of outstanding estimates.
Resolved,
Ordered,
Mr. Austin Mitchell (Great Grimsby):
It is a pleasure to be able to discuss the subject of insolvency. The amazing lack of interest in the subject is testimony to the fact that Members of Parliament are so much better paid these days; this would not have happened if they were paid at the same levels as when I was a lad.
This is an important subject that should cause us a great deal of concern. The issue of insolvency, liquidation and bankruptcy is emotive. It is fraught with concern, anxiety and agony for those involved--it is traumatic for them--and that is exactly why the area should be well regulated by scrupulous practitioners who can be called to account and owe a duty of care to those involved. Such practitioners should work to predictable, known rules; they should work openly and be subject to appeal and control to protect the vulnerable. None of those characteristics applies to insolvency as it is presently regulated.
The practitioners work in the dark; that darkness is compounded for the victims of insolvency. There is no effective independent regulation--indeed, there is no effective regulation. There are 2,000 insolvency practitioners in this country and, for that small number, there are eight regulators, including the Department of Trade and Industry and the Society of Practitioners of Insolvency--a trade association rather than a regulator. There are far too many regulators. They overlap and trample on each other's feet; their responsibilities are not clear. It is difficult to secure effective regulation among such a plethora of regulators.
The framework of regulation consists of the Mafia regulating the Mafia: the practitioners regulate themselves in their own interests, without effective independent control. There is nothing to cause the public interest to intrude into that area.
Even the Department of Trade and Industry working party which, as my hon. Friend the Minister will no doubt remind me, is considering the issue, is the Mafia regulating the Mafia. The people who make up that working party do not include the victims of insolvency--those who have gone under, those who have suffered the consequences, or those who have been aggrieved by the insolvency process. The working party is essentially composed of the practitioners.
I hope that my hon. Friend will be aware of the blandishments of that working party and bear in mind what it is. It is the industry speaking for itself and almost certainly telling my hon. Friend that all is for the best in the best of all possible insolvency worlds; in fact, it is not. If it is to be effective, the inquiry should be independent and presided over by a High Court judge; in fact, it is chaired by a representative of the Law Society and includes representatives of all the other regulators--the trade associations. None of those who have suffered, including the employees of companies that have gone under, have been included. The working party does not hold public hearings; effectively, it operates in secrecy. It is a sham.
The main legislation in the area, the Insolvency Acts of 1985 and 1986, was meant to provide ways of rescuing companies. It was meant to protect the investor, the shareholder and the creditor. In fact, it has become a series of Acts for the protection of the accountants because it gives them, as corporate undertakers, a licence effectively to print money in the fees they levy for insolvency work--work in which the banks call the shots and the accountants enrich themselves.
By serving the dominant interest of the banks, the accountants have obtained the statutory monopoly of audit. When something goes wrong with the audit, they also operate an effective monopoly of the insolvency work that results from bad audits and bad ways of running companies. They get the fees for creating the mess and the fees for clearing it up. One cannot think of a better monopoly for self-enrichment.
The fees are huge. Much of the work is done by unqualified staff, but the fees charged are £100 per hour for some grades and £300 to £500 per hour for partners. When the Social Security Committee studied the Maxwell liquidation, in 1993, when the bill for that liquidation was only £50 million--it has increased since--it found that Robson Rhodes was charging between £111 and £174 per hour, Arthur Andersen was charging between £90 and £153 per hour, and Price Waterhouse was charging between £120 and £190 per hour. That is how some of those astronomical fees are calculated.
The fees so far in the Bank of Credit and Commerce International insolvency amount to $281 million for Deloitte and Touche. It is wonderful work if you can get it--far more profitable than designing Eurofighters, building cars or producing other things of value to the consumer. The insolvency income of the major accountancy firms, which employ 40 per cent. of the insolvency practitioners, is huge. Even two years ago, Coopers and Lybrand earned £53 million a year, KPMG earned £43 million a year and Ernst and Young earned £44 million a year--and those are data that those firms provided to the accountancy press.
Whoever loses in an insolvency, the practitioners win--that is the name of the game. I cite some instances from my experience. A Mrs. Askew, who had the lease of two pubs in Lincoln--a fairly wealthy lady, who was ill and, I believe, was inattentive to the financial side of the business--was sued by a wine merchant for £4,400 in unpaid bills. The liquidator was put in. The costs and fees of that liquidation, for a bill of £4,400, came to £120,000. When I asked the Institute of Chartered Accountants why the figure was so huge, I was told that Mrs. Askew was to blame because she did not co-operate with the trustee. That is a huge bill, given that she was in hospital for much of the time she was accused of non-co-operation. It is a ludicrous charge.
Practitioners are in a wonderful position and the big accountancy houses win both ways. The banks, which are notorious for thrusting umbrellas upon us when the weather is dry and snatching them back as soon as it rains, have most of us in a tight grip--I will make it no more vivid than that. If a firm of accountants put in by a bank
to report on a business recommends liquidation, the same firm's insolvency arm gets the liquidation work. That is a monstrous vested interest and places constant pressure to recommend liquidation.
The classic instance--about which I have had a long correspondence with the DTI and the regulators--is the case of J. S. Bass in Manchester in 1988. Barclays bank put in Ernst and Young to report on the business. It did a survey which took all of 48 hours--it is called a quick and dirty survey in the trade. It looked at the accounts, which effectively can be made to say anything. It did not look at the order book or the assets--this was an asset-rich company--and overestimated the losses of the company by a factor of five. It recommended that the firm be put into receivership.
The firm was put into receivership by the insolvency arm of Ernst and Young, which then sold the factory and the property at less than agreed prices--some of it, apparently, to clients of the bank--and found a surplus at the end of £1.2 million. But that had all gone in fees by then, so, effectively, there was no surplus. The insolvency practitioner is guaranteed his share of the operation.
What is more, the bank tried to take out a bankruptcy order on the managing director, Barry Chapman, to shut him up because of his objections to the operation. Professor Tony Christie of Salford university complained about the behaviour of Ernst and Young in a letter to his Member of Parliament, Sir Fergus Montgomery. Sir Fergus passed it on to Ernst and Young, which then took out a writ against Christie to shut him up and to stop his accusations against Ernst and Young. Here is an academic facing the might of one of the big six. It is easy to imagine how the balance of power will go. None of this had any effect on the inquiry by the DTI or the regulators. There was no satisfaction, and the business smells curiously.
These are murky waters. Here is a vested interest recommending liquidation to the bank and then getting the insolvency business. The banks should not do this. If they try to do it, the Government should prohibit it. The Royal Bank of Scotland, I am pleased to say, has announced that it will not appoint the same firm to do the financial inquiry and the insolvency work. It has found that it has been able to reduce the fees for insolvency work by 40 per cent. because it now has competitive bids from practitioners. It has reduced by 60 per cent. the number of receiverships it deals with, by the simple expedient of refusing to use the same firm.
The practitioners owe a duty of care only to the interests which put them in--usually the bank. They have no responsibility to other creditors, whose interests can be ignored because the practitioners and the interests which put them in effectively control the flow of information to other creditors and to the courts. The whole business is secretive and goes on behind closed doors. There is no requirement to publish the bids that the receiver is soliciting for assets or to ensure that the process is carried out fairly. The process should be open to ensure that it is above board. It pays receivers not to rescue a company, but to keep the procedure going for ever--because there are fees whatever happens.
It would be much easier if the auditor's papers were required to be available to the insolvency practitioner,
because the auditor has done the work and presumably knows where the assets are, where the problems are and where the creditors are. All that work must be done again for large fees by the insolvency practitioner.
The fact that that is done behind closed doors leads to doubtful, murky deals. Euroscan is a Nottingham-based printing company. An offer was made to buy the firm from the receiver for £320,000. The receiver eventually sold it for half that sum to a company formed by the receiver in which he was a major shareholder. That practice is not just curious; it is wrong.
In another notorious insolvency case a few years back, Corporate Communications was put into receivership. The receivership was operated by a firm that had acted as consultant to Corporate Communications. The receiver sold it back to the directors at half the valuation and got the fees for the operation. The creditors were left to whistle.
The list goes on. No wonder there are 500 to 600 complaints every year about insolvencies. Satisfaction of those complaints is rare indeed, because there is no way of securing satisfaction or of disciplining or controlling the practitioners. The heftiest disciplinary measure that I have heard of is the penalty imposed by the institute on Jordan and Stone in the Polly Peck liquidation. Against the guidelines, Coopers and Lybrand took on the insolvency work, even though it was working for Polly Peck in the Channel islands. When that was discovered, the firm claimed that its organisational records were not adequate for it to tell that it was working for Polly Peck. Coopers and Lybrand sells computer systems to other businesses, yet it did not know that. The machinery trundled into gear and a massive fine of £1,000 was imposed on each firm. The fees on that insolvency were between £15 million and £20 million. The fine for infringing the guidelines must have terrified the firms.
Everything is decided by private law, by discussion with the firms in which the shareholders play little part. They can complain, but they have no right of appeal. There is an ombudsman, but he is an industry figure paid by the professional body. I am sure that matters will improve under my hon. Friend the Minister for Competition and Consumer Affairs, but until now it has been no use protesting to the Department of Trade and Industry, because the Department has simply relayed the complaints back to the professional bodies.
The fees charade goes on. I can cite examples from the Bankruptcy Association. A plumber was bankrupted for non-payment of VAT. The bill was £2,100; the liquidation fees were £15,000. In another case, the accountants admitted doing six hours' work and charged £2,500 for it. In a further case, assets of £2.1 million were realised and the fees for realising that sum were £850,000.
I hope that my hon. Friend will take a cold, hard look at the area. I know that there will be fewer bankruptcies under Labour, because a Labour Government will run the economy for growth and expansion and improve the business climate.
That a supplementary sum, not exceeding £66,285,000, be granted to Her Majesty out of the Consolidated Fund to defray the charges for Civil Services which will come in course of payment for the year ending on 31st March 1998, as set out in House of Commons Paper No. 65.
Ordered,
Dawn Primarolo accordingly presented a Bill to apply certain sums out of the Consolidated Fund to the service of the year ending on 31st March 1998, and to appropriate the supplies granted in this Session of Parliament: And the same was read the First time; and ordered to be read a Second time tomorrow, and to be printed [Bill 46].
That a Bill be brought in on the foregoing resolutions: And that the Chairman of Ways and Means, Mr. Chancellor of the Exchequer, Mr. Alistair Darling, Mr. Geoffrey Robinson, Mrs. Helen Liddell and Dawn Primarolo do prepare and bring it in.
That Standing Order No. 146 (Select Committee on Public Administration) be amended, in line 8, by leaving out the word 'nine' and inserting the word 'eleven'.--[Mrs. Ann Taylor.]
Ordered,
That Mr. Norman Baker, Ms Hazel Blears, Mr. Ben Bradshaw, Mr. Russell Brown, Mr. Roger Casale, Mr. William Cash, Mrs. Margaret Ewing, Mrs. Linda Gilroy, Mr. Jimmy Hood, Ms Jennifer Jones, Mr. Jim Marshall, Mrs. Anne McGuire, Mr. Bill Rammell, Mr. Anthony Steen, Mr. Andrew Tyrie and Mr. Shaun Woodward be members of the Select Committee on European Legislation.--[Mr. Mudie.]
15 Jul 1997 : Column 298
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