Insolvency lawyers want company levy

Companies should pay contributions to a central fund to help pay lawyers' fees in liquidations, according to a radical suggestion by the Insolvency Lawyers Association (ILA).

Professor David Milman and Rebecca Parry at Manchester University proposed the move, after conducting the first ever study commissioned by the ILA into the treatment of creditors in insolvencies.

They found that in 60 per cent of cases, liquidators who were faced with suspect transactions did not bring proceedings because they lacked funds.

Several lawyers and accountants have been criticised recently for using up large proportions of the assets they have recovered for creditors in their own costs and fees.

The Lord Chancellor's Department has commissioned an inquiry into the regulation and fees of insolvency practitioners and will report shortly.

Graeme Jump, a partner at Manchester firm Mace & Jones and president of the ILA until two weeks ago, said: “Unless there is money available to the liquidator then there is little that can be done to challenge obvious wrongdoing.”

He added that unsecured creditors “were fed up with being ripped off and want something done about it”. He said the levy could be imposed on companies either at the time of formation, or on an annual basis.

The study also found that banks are “too well protected” in insolvency cases at the expense of unsecured creditors.

It points out that banks often force companies to give security on loans without giving them any extra benefits, by simply threatening to call in old unsecured loans.

The study goes on to recommend that the law should be changed so that banks should only be granted security if the company receives an economic benefit from that bank.

Clifford Chance partner Mark Hyde, formerly vice-president, has taken over the ILA presidency.