Insolvency Fees and Charges: Honda Dispute Highlights Need for Reform

A recent court ruling into the conduct of administrators at BDO and PKF highlights the need for an independent review into insolvency practitioners (IPs) and their regulations – something I’ve been blogging about for many months.

The dispute centred on Formula One team Super Aguri whose directors appointed three joint administrators from PKF following the collapse of the business in May 2008.

Administrators set up a deal to sell the carmaker and announced plans to place the business into a company voluntary liquidation after two weeks.

But according to PKF, Super Aguri’s biggest creditor, Honda (who were owed more than 85 per cent of the total debt), sought preferential treatment.

When they didn’t receive it, PKF were thrown out and replaced with BDO. Additionally, Honda accused PKF of overcharging and offered to pay only £90,000 of their £250,000 administration fees.

PKF denied the fees were excessive and two months ago a judge agreed, awarding costs to the administrators of £241,843.46 – about 95 per cent of the disputed sum.

The case highlights concerns raised by myself and others – such as the Office of Fair Trading – particularly in regards to the lack of a robust complaints system and pricing inconsistencies in the insolvency process.

There must be more independent scrutiny to ensure that IPs are always acting in the interests of all creditors, not just the larger ones such as Honda, and there needs to be better regulation of administration fees and charges.

Dealing with IPs can be very difficult because they charge what they want depending on how long a task takes. One may charge £100 per hour while another charges £200 for the same 60 minute period.

You may choose the cheaper option thinking it’s a better deal, but that IP may take twice as long to do the same job and therefore charge the same amount.

IPs don’t charge on a fixed cost basis, although it’s supposed to be creditors who appoint the IP and their rate of remuneration.

That’s really a lot of rubbish because the IP puts forward their rate and then creditors appoint the IP. Creditors are usually unaware of how long an IP will take to do their job.

Even more bizarrely, everyone from an IP firm that looks at a case is allowed to charge.

So if a junior partner, senior partner, associate and an administrator all work on the same case, the firm is entitled to bill for each of their expertise, which is scandalous really.

IP’s fees are sometimes excessive because they can create work for themselves to justify fees. Lawyers work in a similar way too.

What’s sad about the Super Aguri case is that it took a court ruling and nearly two and a half years for the smaller creditors to find out whether they’d been overcharged by PKF.

And to add insult to injury, the court and appeal costs, and administration bill come out of the expense of the liquidation, which drastically reduces any money they were due to receive.

While the judge in the case found that PKF had acted appropriately, who is out there ensuring that creditors are always treated equally?