Insolvency Oracle

Developments in UK insolvency by Michelle Butler

Last Chance to Speak Up on Partial Licences

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In December, I reported on the current position of the Deregulation Bill (http://wp.me/p2FU2Z-4Z) and the Parliamentary Committee’s irritation at the apparent lack of formal consultation on the Insolvency Service’s plan to introduce partial licences for insolvency practitioners to take on either only personal or only corporate insolvency appointments.

I am sure that most of you will have become aware of the Insolvency Service’s letter, dated 23 January, inviting comments on the draft Bill, with a deadline of 21 February (http://www.bis.gov.uk/insolvency/news/news-stories/2014/Jan/Clause10).

Having exchanged views with my fellow R3 Smaller Practices Group Committee members, I had assumed that almost all IPs consider it essential to have the full spread of insolvency knowledge and preferably experience, so that they can react competently to whatever walks in through the door. Possible exceptions to this model would be the very few that really do live the life of a personal or corporate insolvency specialist, and it could be thought that even they may come a cropper when faced with an atypical client. I had assumed that the opinion of R3 vice-president, Giles Frampton (http://www.r3.org.uk/index.cfm?page=1114&element=19677), was pretty-much the norm, with others being even more vociferous, e.g. Frances Coulson’s “Don’t dumb down the profession” http://www.moonbeever.com/category-blog-entry/696-don-t-dumb-down-the-profession). However, other IPs on a Scottish Insolvency LinkedIn discussion seem to be far more in favour of the measure, seeing it as more realistic for the world we live in, so maybe it isn’t so black-and-white.

Given that Clause 10 is already in the Bill, which claims to be designed around the noble motive of reducing regulation, it is likely that those not in favour of the measure will need to generate quite a swell in order to turn the tide. Therefore, if you do feel strongly about this, I recommend that you make your views heard. You have just over two weeks!

The Insolvency Service’s View

The Insolvency Service’s letter highlights what they believe are three advantages of the change. They say it will:

• “reduce the barriers to entry to the IP market and thereby increase competition.

• “give rise to savings on training fees, which are likely to be of proportionally greater benefit to smaller firms of insolvency practitioners, including new entrants to the market

• “remove a burden from existing IPs who already choose to specialise in a particular area but are required to study areas that have little or no relevance to their work or benefit to their clients.”

“Reduce the barriers to entry to the IP market and thereby increase competition”

Personally, I don’t feel qualified to comment on the Service’s assumptions. I’m not in business as an appointment-taker and I only really witness the business end of insolvency from the side-lines. However, what I have seen in recent years are many more IPs and other insolvency professionals changing their LinkedIn profiles to “consultant” or “available”. I have also heard far more stories recently of cases being taken off the S98 floor and undercutting for MVLs than I have since the 1990s and I certainly don’t think that the IVA market is crying out for any fast-tracked personal insolvency specialists to compete for IPs’ meagre returns.

Does the profession really suffer from a lack of competition or is this an outdated view persisting from the OFT’s market study into corporate insolvency, which was generated from 2006 data when the world was a far different place?

“Give rise to savings on training fees, which are likely to be of proportionally greater benefit to smaller firms of insolvency practitioners, including new entrants to the market”

I assume that the Service’s thought-process is that there is likely to be a lower head-count of staff per IP in a smaller practice than in a large multi-national and therefore the smaller practice will gain a greater relative benefit from reduced training costs (on the assumption that it will cost less to train and qualify as a partial licence-holder).

However, has it not occurred to the Service that the smaller practice will have next to no use for a partial licence-holder? A key to most smaller practices’ success is that their doors are open to anyone in the locality in need of help whether they be individuals, business partners, or corporate entities. They are not regimented into “centres of excellence”, but have the breadth of knowledge and experience to deal with almost anything. Their case portfolios are, almost without exception, a mixture of corporate and personal insolvencies and usually their staff, some of whom will be the appointment-takers of the future, are exposed to a variety of insolvency types. Therefore, I cannot see why any smaller practice IP would want to take on a partial licence-holder or encourage their staff to study for such a licence.

The only profile of practice that might be a home for a partial licence-holder is the volume IVA provider or the corporate department of a large multi-national. Therefore, contrary to the Service’s view, I believe that the only beneficiaries of any reduced training fees may be large firms and that the corollary could be increased fees for those training for full licences, if demand for these drops, which would be felt disproportionately by smaller practices. This doesn’t sound like a sensible measure for a pro micro-business government to introduce.

“Remove a burden from existing IPs who already choose to specialise in a particular area but are required to study areas that have little or no relevance to their work or benefit to their clients”

This is an odd one?! Has the Insolvency Service not read its own Regulations regarding CPD for IPs authorised by the Secretary of State? Even they do not specify that CPD needs to cover the range of insolvencies; it is merely “any activities which relate to insolvency law or practice or the management of the practice of an insolvency practitioner” (IP Regs 2005) and I believe that most RPBs’ views of CPD/CPE are, in a nutshell, whatever would help the licence-holder practise better as an IP. Therefore, I cannot see that IPs at present are under any pressure to study areas that have little or no relevance to their work or benefit to their clients. Hence, I can see no advantage in providing partial licences and I very much doubt that any existing IPs will downgrade to a partial licence.

Consultation

There are many more arguments against partial licences, such as those described by Giles Frampton and Frances Coulson, and no doubt R3 will be responding loudly to the consultation.

I think it is very important that the smaller practices’ voices are heard, particularly as the Service has claimed support for its plan in the expected savings to be felt by this group. I would encourage you to respond to the consultation and to R3’s Smaller Practices Group’s imminent invitation to send in your views, so that you can contribute to R3’s own response.

(UPDATE 04/03/14: The ICAEW has submitted, in my view, a storming response to the consultation: http://www.icaew.com/~/media/Files/Technical/icaew-representations/2014/icaew-rep-36-14-partial-authorisation-of-insolvency-practitioners.pdf. It reads like a gentle sledgehammer, maintaining a sense of calm reason throughout. I particularly liked the reference to the Government’s recently-disclosed proposed objectives of insolvency regulation and how partial licences may act contrary to at least one of them. The ICAEW response is unequivocal in its conclusion: “We have received through our own consultation process no indications of support at all for the proposed partial qualification regime”.)

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