The reason I am posting this article is so that before you go and decide to get legal advice makes sure that you know what you are letting yourself in for:
Here are some cases:
n October 2006, Christmas hamper firm Farepak collapsed owing £37.1m to more than 119,000 savers. About three years later, the savers are likely to recover 5p in the pound. Administrators BDO Stoy Hayward and their legal advisers have already chalked up fees of £2.3m and the final bill could be about £3m.
In November 2008, music retail chain Zavvi entered administration, and subsequently liquidation, with unsecured creditors owed nearly £185m. These included 510,000 unredeemed vouchers, many bought as Christmas gifts, which at the time of administration were estimated to be worth £4.1m. Creditors are likely to get between 5p and 10p in the pound. Administrators Ernst & Young have collected £3.2m in fees and more will follow.
In January 2009, furniture chain Land of Leather went into administration with debts of £37m. By September 2009, creditors received just 9p in the pound, but administrators Deloitte & Touche have run up fees of £2.5m.
In November 2004, Courts, another furniture chain, went into administration. KPMG has chalked up fees of £24m. Legal and financial advisers collected another £16m.
The administration of Lehman Brothers by PricewaterhouseCoopers (PwC) is expected to run for 20 years. By October 2009, the firm had collected £154m in fees and the final tally could be $4bn (£2.5bn). Senior staff have been charged out at £620 an hour and even the most junior employees have been charged £143 an hour, averaging at £329 an hour.
The insolvency gravy train runs for years. In principle, a creditors' committee is supposed to oversee the insolvency practitioners' work, but many creditors are busy looking for other sources of revenue and cannot invigilate the practitioners. Prolonged insolvencies generate bigger fees. Insolvency practitioners have a prior claim on all cash and must be paid before creditors. Some 20,721 liquidations that commenced more than 10 years ago have not been finalised of which, 17,058 commenced more than 15 years ago.
The Bank of Credit and Commerce International (BCCI) liquidation started in July 1991 and still is not finalised. Liquidators and advisers led by Deloitte have charged more than £400m. Israel-British Bank entered liquidation in July 1974. It was finalised by PwC in September of this year. 1n 1974, Apal Travel went into liquidation. Hacker Young finalised the liquidation this August and paid out 74p in the pound to holidaymakers. Some probably died in the intervening 35 years. The firm blamed the delay on the time taken to complete the Israel-British Bank liquidation, which it said had a knock-on effect.
The UK insolvency regulation has failed. All insolvency work is handled by 1,600 licensed practitioners, mostly working in accountancy firms. This statutory monopoly is a licence to print money. The practitioners are regulated by accountancy and law professional bodies, which have no independence from the firms they regulate. They are unfit to perform regulatory functions. The complaints rate has soared to 78% in some cases, but hardly anyone is banned or investigated. Regulators are adept at sweeping things under their dust-laden carpets. There is no independent complaints investigation procedure or independent ombudsman to adjudicate on malpractices. No questions are asked about exorbitant fees, or excessive delays. They don't owe a "duty of care" to anyone affected by their failures. This edifice is overseen by the Insolvency Service, which itself is populated by personnel from accountancy and law firms.
Ernst & Young audited Farepak and BDO Stoy Hayward became administrator. Lehman Brothers was audited by Ernst & Young and PwC earns fees as administrator. BCCI was audited by Price Waterhouse (now part of PricewaterhouseCoopers) and Deloitte is collecting millions in fees as liquidator. BDO Stoy Hayward audited Keydata Investment Services and PwC is raking in fees as administrator.
A favourite excuse for prolonged insolvencies is that the affairs of the bankrupt business were complex. Of course, the same accountancy and law firms fail to acknowledge their own role in creating complex and opaque transactions. If the affairs of the failed companies are complex, how did the auditors manage to give them a clean bill of health? Auditors' files could provide some clues but auditing firms, the ones who also act as administrators, don't want to hand their files to administrators and liquidators. So the insolvency merry-go-round continues to produce lucrative fees.
Src(Grd)
Here are some cases:
n October 2006, Christmas hamper firm Farepak collapsed owing £37.1m to more than 119,000 savers. About three years later, the savers are likely to recover 5p in the pound. Administrators BDO Stoy Hayward and their legal advisers have already chalked up fees of £2.3m and the final bill could be about £3m.
In November 2008, music retail chain Zavvi entered administration, and subsequently liquidation, with unsecured creditors owed nearly £185m. These included 510,000 unredeemed vouchers, many bought as Christmas gifts, which at the time of administration were estimated to be worth £4.1m. Creditors are likely to get between 5p and 10p in the pound. Administrators Ernst & Young have collected £3.2m in fees and more will follow.
In January 2009, furniture chain Land of Leather went into administration with debts of £37m. By September 2009, creditors received just 9p in the pound, but administrators Deloitte & Touche have run up fees of £2.5m.
In November 2004, Courts, another furniture chain, went into administration. KPMG has chalked up fees of £24m. Legal and financial advisers collected another £16m.
The administration of Lehman Brothers by PricewaterhouseCoopers (PwC) is expected to run for 20 years. By October 2009, the firm had collected £154m in fees and the final tally could be $4bn (£2.5bn). Senior staff have been charged out at £620 an hour and even the most junior employees have been charged £143 an hour, averaging at £329 an hour.
The insolvency gravy train runs for years. In principle, a creditors' committee is supposed to oversee the insolvency practitioners' work, but many creditors are busy looking for other sources of revenue and cannot invigilate the practitioners. Prolonged insolvencies generate bigger fees. Insolvency practitioners have a prior claim on all cash and must be paid before creditors. Some 20,721 liquidations that commenced more than 10 years ago have not been finalised of which, 17,058 commenced more than 15 years ago.
The Bank of Credit and Commerce International (BCCI) liquidation started in July 1991 and still is not finalised. Liquidators and advisers led by Deloitte have charged more than £400m. Israel-British Bank entered liquidation in July 1974. It was finalised by PwC in September of this year. 1n 1974, Apal Travel went into liquidation. Hacker Young finalised the liquidation this August and paid out 74p in the pound to holidaymakers. Some probably died in the intervening 35 years. The firm blamed the delay on the time taken to complete the Israel-British Bank liquidation, which it said had a knock-on effect.
The UK insolvency regulation has failed. All insolvency work is handled by 1,600 licensed practitioners, mostly working in accountancy firms. This statutory monopoly is a licence to print money. The practitioners are regulated by accountancy and law professional bodies, which have no independence from the firms they regulate. They are unfit to perform regulatory functions. The complaints rate has soared to 78% in some cases, but hardly anyone is banned or investigated. Regulators are adept at sweeping things under their dust-laden carpets. There is no independent complaints investigation procedure or independent ombudsman to adjudicate on malpractices. No questions are asked about exorbitant fees, or excessive delays. They don't owe a "duty of care" to anyone affected by their failures. This edifice is overseen by the Insolvency Service, which itself is populated by personnel from accountancy and law firms.
Ernst & Young audited Farepak and BDO Stoy Hayward became administrator. Lehman Brothers was audited by Ernst & Young and PwC earns fees as administrator. BCCI was audited by Price Waterhouse (now part of PricewaterhouseCoopers) and Deloitte is collecting millions in fees as liquidator. BDO Stoy Hayward audited Keydata Investment Services and PwC is raking in fees as administrator.
A favourite excuse for prolonged insolvencies is that the affairs of the bankrupt business were complex. Of course, the same accountancy and law firms fail to acknowledge their own role in creating complex and opaque transactions. If the affairs of the failed companies are complex, how did the auditors manage to give them a clean bill of health? Auditors' files could provide some clues but auditing firms, the ones who also act as administrators, don't want to hand their files to administrators and liquidators. So the insolvency merry-go-round continues to produce lucrative fees.
Src(Grd)
None of these cases involved the suing of Directors and the Auditors.All of the examples you give are the fees that the ADMINITRATORS have charged to wind up the business.The recovery rate reflects the fact that the fees of the Administrators are deducted from what remains of the assets which in many cases isnt much.
ReplyDeleteThat is all the more reason to pursue a legal claim against the Directors and the Auditors,in this case Ernst and Young.The legal claims for negligence will plug the shortfall.None of the cases you quote involved the pursuit of the Directors and Auditors to plug the shortfall.
This case was a clear, deliberate and flagrant breach of FSA client segregation rules going back many years and clients who have lost money as a result have a very good case.
This post raises some interesting questions with regard to Worldspreads. Apparently clients of WS are owed almost £30m in deposits. There is a shortfall in 'client funds' of around £13m which leaves £17m in the 'client fund'. If this is indeed 'ring-fenced' then one assumes that the administrators CANNOT use this money to pay their own fees? This is the whole idea of 'ring-fencing' client money eh?
ReplyDeleteWhere would the money come from to pay them?.There isnt any other money.
DeleteSome money may come in from the sale of assets like dealing platform and office stuff.
DeleteIf that money isnt paid to KPMG it would make up some of the shortfall.Either way, clients pay KPMG fees.
DeleteYou should be aware that clients who have money in segregated accounts have priority over normal trade creditors such as the Landlord/suppliers of computers.They are likely to recieve little or nothing.The recovery rates quoted in the above post reflect the experience of unsecured creditors in companies without segregated client accounts.
ReplyDeleteMy understanding (in law) is that retail clients with money in the segregated account are not classed as 'creditors' because the money has never legally passed, in title, from the client to the firm. In simple terms the money always belongs to the client even though he keeps it with the firm. On that basis no one else can even lay claim to those funds. With that in mind any attempt to remove ownership of those funds would surely constitute 'theft' as laid out in the 'Theft Act'.
DeleteBut the money was removed,indeed stolen.But given that it was ,the shortfall ranks only as a priority creditor.It cant rank anymore than this.No one else is laying claim to it.But the money has been taken and there is a shortfall.
DeleteNo, a different method is used to divide up the remaining client funds. It's called "Primary Pooling". In simple terms, all the funds held in client designated accounts are added together and then shared out equally. This money never comes into contact with potential claims against the firm from creditors as this money is handled in a completely different matter.
DeleteI am a bit confused.If retail clients have seniority over all other credititors but the total amount of money owed to them is more than all the money that still exists in the company doesnt that just mean that the clients get back whatever percentage is there and the other creditors get nothing.All other creditor claims get nothing until all client money is recovered, which in this case they wont because there isnt enough money left.It just means all other creditors get nothing.
DeleteYou're pretty much correct. However it depends I guess on how much money the firm actually kept in the client funds accounts and how much it moved into its own account. See to me that the firm helped itself whenever the need arose and given the amount 'missing' from client funds this appears to have gone on for quite some time.
DeleteThis post highlights the cost and time taken to liquidate a company but shows exactly why we should sue the Directors and Auditors for the Shortfall.
ReplyDeleteThe point made here about the size of the fees charged by Administrators is a good one.They do often seem excessive.We should be asking KPMG to justify their fees.
ReplyDeleteAnonymousMar 26, 2012 11:37 PM
ReplyDelete(None of these cases involved the suing of Directors and the Auditors.All of the examples you give are the fees that the ADMINITRATORS have charged to wind up the business.The recovery rate reflects the fact that the fees of the Administrators are deducted from what remains of the assets which in many cases isnt much.)
The reason I have posted this is too highlight ? Fees and Timespan..as a main..also regarding suing the auditors are you aware there is a no liablity clause of specific kind in the auditors agreement ? Will post this later on .
Regards
Rav
Thanks Rav
DeleteAll the best
It's worth pointing out that it's not all "bad news" with respect of these business failures. Most of the examples given happened a fair few years back. Since then laws have been modified. In particular The Proceeds Of Crime Act now allows civil recovery as well as investigation by SOCA. Financial fraud of this magnitude is normally considered to be a fairly serious crime and as such those responsible could well find themselves on the end of invesitgations from several agencies. Once these are made public, those responsible could well have problems defending themselves against civil recovery cases.
ReplyDeleteSo does this mean that if any employee that can be identified as being responsible for the use of client money, even if not a Director can be sued under the Proceeds of Crime Act. On the basis that the money was removed from client accounts, there can be no dispute about that, there must be someone to sue. Does this mean that whoever the Police charge can be sued by individual clients?.
ReplyDeleteAt a guess I think you'd have to show that the individual benefited in some way by commiting the fraud.
DeleteIt seems unlikely that an individual employee would be solely responsible for the WS fiasco. More likely the strategy of using client funds evolved at a higher level. Obviously the directors have a vested interest in keeping a company going and therefore drawing a salary etc not to mention the valuations of their own share holdings etc.
All the cases listed are very poor comparisons, MF Global (Nov2011) was massive compared to Worldspreads yet clients are now due to start getting money back only 4 1/2 months later.
ReplyDelete