SCOTLAND must clamp down on its insolvency industry amid concerns of “potential mis-selling”, a new report warns.

More than a thousand debt- ridden Scots went bust last year – many losing their homes – despite entering into legally binding deals arranged by under-regulated firms, according to the Govan Law Centre.

The Glasgow-based not-for-profit organisation said an “alarming” 15 per cent of all protected trust deeds, voluntary but binding schemes designed to prevent full-scale sequestration, the Scottish equivalent of bankruptcy, were failing.

Official figures show that at nearly nine out of 10 deeds arranged by two companies ended in failure while, in contrast, two other companies helped all of their clients out of debt.

Govan Law Centre condemned what it called “unsatisfactory” Scottish regulation. It said: “A failure rate of 15 per cent is alarming, but one of 88 per cent is appalling and if related to any other consumer financial product would be a cause for serious concern and potential evidence of mis-selling.”

The law centre’s report comes amid concerns that some firms impose excessive fees on the protected trust deeds they administer.

Mike Dailly, the centre’s principal solicitor, said: “For those firms with a high failure rate what is happening is the consumer thinks they are making payments to creditors, but no dividend is ever paid to creditors, with thousands of pounds in each case being charged by the firm as a fee.

“Shockingly, the consumer ends up back in the same perilous position they started with, despite paying thousands of pounds to an insolvency firm. “Govan Law Centre doesn’t think this is the interest of consumers or creditors.

“The market isn’t working properly.”

Protected trust deeds allow a debtor to put all his or her assets in to a trust administered by a firm on behalf of their creditors. All such instruments are overseen by the Accountant in Bankruptcy (the AiB), a government agency, which keeps records on their outcome.

The AiB’s annual report for 2015-2016 shows that an average of 15 per cent of all debtors were not discharged of their debts after going through a protected trust deed.

The failure rate for the biggest firm administrating the instruments, KPMG, was 12 per cent. This compared with a figure of 88 per cent for Knightsbridge Insolvency, which did not respond to a request for comment.

David Kerr, chief executive of the Insolvency Practitioner Association, the trade’s professional body, said: “Most practitioners undertake their work with a high degree of skill, professionalism and customer care. Where that is found not to be the case, we have taken and will continue to take appropriate regulatory action in the public interest.”