Asset-based lenders ‘must be regulated’

Eric Anstee, who now runs investment firm City of London Group, also called for a crackdown on “cosy” relationships between insolvency practitioners and asset-based lenders, which typically advance cash against invoices to small and medium-sized businesses and take security over their order books in return.

A Daily Telegraph investigation has highlighted allegations of lenders charging excessive and opaque fees and “profiting” from administrations, with business owners claiming they have been forced into administration unnecessarily.

There have also been complaints of alleged collusion between administrators and invoice finance firms over insolvencies, with hefty contractual fees leaving unsecured creditors – chiefly the taxpayer – out of pocket.

“There needs to be a thorough examination of insolvency practitioners’ relationship with invoice finance firms. There are a lot of conflicts of interest,” he said.

Mr Anstee said that since the insolvency industry is already regulated it needs to scrutinise how it works with the asset-based lending industry, which advances around £16bn to 42,000 small and medium-sized companies.

Invoice finance lenders can put companies into administration and appoint a “friendly” insolvency firm. Some invoice finance brokers who pass leads to lenders are even owned by insolvency practitioners.

He added: “Invoice finance needs to be regulated because it’s such an important source of finance for SMEs and the terms it’s done on need to be fair.

“I’m not talking about [cost of funding] – it’s the peripherals. When a [provider] takes a new client on, it can sometimes be more beneficial to put it into administration than to continue to service it with funds. That can’t be right. The standard contracts need to be regulated so they’re treating customers fairly.”

However, he added that any regulation would have to be carefully structured so it didn’t stifle the industry.

“Invoice finance firms have to be competitive and we certainly don’t want to choke off the availability of funds, but you want it done on a fair and transparent basis.”

The Business Department, Treasury and Insolvency Service are currently “looking into” the industry.