Receivers fight to head off deluge of claims

A 29 year old former insolvency accountant has caused uproar in his profession by setting up a service that will enable former employees of bust companies to bring millions of pounds worth of claims against accountancy firms.

Jonathan Hogg has set up a one-man operation, Crown Redundancy Service (CRS), from his home in Balham, south London, just two months after leaving the accountants Ernst & Young.

Having specialised in insolvency work for nine years, Mr Hogg is offering to handle claims against his former profession using a controversial Law Lords ruling made a fortnight ago. His initiative comes at a highly sensitive moment for the receivers, who are lobbying the Government to bring in retrospective legislation to overturn the Law Lords ruling. Receivers say tens of millions of pounds worth of claims have already been lodged against them, and the Government must act urgently.

"Its the usual ambulance chasing," fumed Allan Griffiths, who this year will become president for the Society of Practioners of Insolvency (SPI), the receivers' trade body.

The SPI made its case in secret talks with Jonathan Evans, minister for corporate affairs, this week. Mr Evans asked the SPI to prepare an estimate of all possible claims. Previous estimates have varied from £100m to £2bn.

Mr Hogg set up CRS in response to the Law Lords ruling on the Paramount case, which made receivers and administrators liable for severance payments and pensions contributions of employees kept on for more than 14 days after a company had gone bust.

The judgment affects those sacked beteen 29 December 1986 and March 1994, and the SPI estimates up to half a million employees may be eligible to make claims.

The SPI will hand over its estimates at the end of the week. Meanwhile, Mr Hogg has already received more than 200 responses to his newspaper adverts, which offer to pursue ex-employees' claims in exchange for a £10 up-front fee plus 10 per cent of any claim he succeeds in winning.

More dangerously from the SPI's point of view, Mr Hogg is planning to mailshot up to 350 former company directors next week, offering them his services. Mr Griffiths fears that claims worth millions will now be lodged by the very directors who helped drive their companies into the ground.

Mr Hogg countered that the vast majority of claims will not be from high-profile directors. "Most cases will be small. I'm hoping to bring a number of class actions."

Mr Hogg added that the big six accountancy firms had prepared for possible claims by holding back from creditors more than £100m in money recovered from bust companies by receivers. The SPI said that most receivers had put payouts to creditors on ice when the Paramount problem emerged last spring wherever there had been a possibility of a future claim.

The SPI fears that claims will be met by taking payouts from other creditors, who would previously have ranked ahead of employees and directors.

These disadvantaged creditors will mostly be small businesses, not banks, says the SPI. "The pain will be felt in some measure throughout the commercial community," said a spokesman.