The Government’s decision not to establish a single regulator for the insolvency profession is positive for practitioners, clients and the professional bodies that already provide oversight.
In December 2021 consultation began over proposed changes to the insolvency regulatory framework. The most significant of these was to create a single regulator to sit within The Insolvency Service. At present, practitioners are overseen (generally quite effectively) by a group of four Recognised Professional Bodies (RPBs) – three Institutes of Chartered Accountants covering the British Isles, plus the Insolvency Practitioners Association.
Apart from the Government’s Official Receiver (OR), only licensed Insolvency Practitioners (IPs) are allowed to oversee UK insolvency procedures. IPs are licensed and regulated, and their fees are agreed with creditors or the courts. IP reports about cases are filed with Companies House and are publicly available. But IPs and the Insolvency Service are very different.
An IP and almost everyone else in his or her firm will be professionally qualified. They will have been exposed to many different situations of corporate and personal insolvency, not only acting as Court appointed administrators / liquidators, or OR-appointed trustees in personal bankruptcy, but also advising both companies and individuals on their strategic options in complex cases of indebtedness. These might, for example, involve negotiations with banks, creditors and other relevant stakeholders. That is not to say that the Insolvency Service is not hugely experienced and highly qualified; it’s just not the same as the insolvency profession. At a basic level, imagine if the UK legal profession was regulated by the Government Legal Department. Of course it’s not exactly the same thing, but the principle isn’t wildly dissimilar.
A single regulator would almost certainly have caused structural and procedural disruption in the profession, risking poor decisions and practice during that period, as well as incurring additional regulatory and compliance costs – which would ultimately have to be borne, at least in part, by IPs’ clients or the estates of insolvent parties.
On the plus side, regulation is being extended to all firms that offer insolvency services; existing arrangements only cover individual IPs. That makes sense, helping to improve and maintain overall standards when groups of professionals work together. There will also be a statutory register of IPs and firms providing insolvency services, while reform is planned for the Insolvency Practitioner security (‘bond’) scheme to cover losses in the event of fraud or dishonesty, including increasing some cover levels to better protect creditors. These are all good positive steps forward.
Power for the establishment of professional operating standards for the insolvency profession will, however, move to the Secretary of State. This is less welcome: at present, standards are established by the Joint Insolvency Committee which has an effective majority of lay members – and a broad group of stakeholders from across the insolvency landscape. This seems like unnecessary bureaucracy to replace a broad-based, inclusive framework aimed at improving real-life working practices.
It would be disingenuous to pretend that our profession has always covered itself in glory during the winding up of businesses but the vast majority of IP’s work hard and produce good outcomes for all stakeholders and there are only a few rotten apples. Nonetheless, while the government should be applauded for recognising the concerns of IPs by amending its core proposal accordingly, the anticipated increase in insolvency work as a result of the ongoing challenging economic environment means that regulation of IPs and their firms will need to be more relevant, realistic and nimble than ever.
Written by David Buchler, Chairman at Buchler Phillips, UK based independent boutique firm with an impeccable Mayfair heritage, specialising in corporate recovery, turnaround, restructuring and insolvency.