– UK Bankruptcy Tzar On Verge Of Bankruptcy (ZeroHedge, March 13, 2013):
Despite around $135 million in bailouts, the UK government’s Insolvency Service disputes its own insolvency. The FT reports that one British MP summed it up – “it is fair to say that if this was a company it would be in deep trouble.” The group, which polices bankrupt companies, liquidates failed businesses and disqualifies unfit directors, would be bankrupt were it not for the government’s cash injection. Dependent on fees and recoveries from bankrupt companies, the agency over-estimated its ability to recover assets from collapsed businesses. It dismisses the insolvency claims against itself however, noting the service is “living within its means” and expects to be deficit-free by 2015 (though it is unclear how unless they expect recoveries to rise dramatically or bankruptcies to increase significantly) as it is forced to provide services even when there is no prospect of recovering fees from bankrupt people or companies. Their rate of prosecution has dropped from 40% to 21% and even the creditor community has lost faith arguing that the agency’s model was “unreliable in the current economic climate” and required urgent reform.
The UK government’s Insolvency Service is all but insolvent.
Experts suggest the group, which polices bankrupt companies, liquidates failed businesses and disqualifies unfit directors, would be broke had it not received an emergency injection of cash from the government.
“It is fair to say that if this was a company it would be in deep trouble,” said Adrian Bailey, chair of the parliamentary business committee.
The Insolvency Service is dependent on fees and asset recoveries from bankrupt companies and the annual number of bankruptcies has fallen sharply over recent years. Official receivers dealt with 43,594 new cases in the 2011-12 fiscal year compared with 77,898 received in 2009-10.
The agency overestimated its ability to recover assets from collapsed businesses through its receivers, known as the Official Receivers.
The Insolvency Service said it was having to “live within its means” because of the drop in case numbers. It has merged its regional offices and cut its headcount by 500, with up to 400 more job cuts in the next three years. “With this strategy in place the service anticipates to be deficit-free by 2015,” it said.
While costs at the agency have been slashed by £60m since December 2009, it is hamstrung by its obligation to provide services even when there is no prospect of recovering fees from bankrupt people or companies.
The Insolvency Service disputes that it is “insolvent” given that it holds £14m of cash on its balance sheet. It has, however, required £89m of rescue cash from the business department (BIS) between 2008 and 2012.
“My concern is that the rate of prosecution, which was 40 per cent of those reported a decade ago, is now down to 21 per cent because the IS is under-resourced,” he said.
“The creditor community is upset because usually, if they don’t get their money back, at least they have the satisfaction that the person has been banned as a director for a number of years… that’s now less likely.”