The cost of going bankrupt in Britain is too high, the Office of Fair Trading (OFT) said today as it launched a sweeping review of Britain’s corporate insolvency market.

The study, amid the longest recession in British history, will examine the way insolvency practioners set their fees and how they are appointed.

The OFT said that it was launching the study following concerns from both the Government and the industry itself about the high cost of going bust in Britain, which it said was a relative weakness of the UK’s insolvency regime compared with other countries.

Clive Maxwell, OFT senior director, said: “We want to identify any potential problems within the corporate insolvency market to ensure that firms and practioners are competing freely and that the market is working well for the end consumers. Efficient insolvency services are an important component of a modern market economy.”

There are over over 3,400 licensed insolvency practioners in Britain working at more than 1,100 different accountancy firms.

But a recent World Bank report showed the costs of closing a business in the UK were higher than in other countries with similar or better rates of recovery.

According to figures from the Insolvency Service, there were 4,716 compulsory liquidations and creditors’ voluntary liquidations in total in England and Wales in the third quarter of 2009, an increase of nearly 15 per cent on the same period a year ago.

Industry figures hit a peak this year with 5,055 compulsory liquidations between April and June.

The OFT said one area of inquiry - although not the study’s main focus - would be to examine so-called ‘pre-pack’ administrations, which gained popularity late last year as a string of UK retailers struggled to survive the downturn.

Pre-pack administrations, where companies enter bankruptcy only for a matter of hours before their assets are repurchased - often by the existing management, have been criticised for harming the interests of creditors.

The OFT said that it would be collecting information from insolvency firms, lawyers, government and regulators. If the study proceeds to a second stage the OFT expects to complete this by the end of next year.

The Ministry of Justice announced today there were 3,101 corporate bankruptcies in the UK during the third quarter of 2009, a fall of 3 per cent on the same period of 2008.

But the figures for personal insolvencies are still rising sharply, increasing 18 per cent increase to 16,266.

Times Recommends

• ‘Lame duck’ fear for FSA as chief quits
• Storm over bailout of EU's most ailing economy
• Northern Rock to drop 100% savings guarantee