Insolvency Oracle

Developments in UK insolvency by Michelle Butler

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The Small Business, Enterprise and Employment Bill: Part 3 – Regulation

1115 Swakop

In my final post on the Bill, I summarise the prospective changes to the IP regulatory landscape: by what standards will IPs be measured in the future? What will be the Insolvency Service’s role? And for how long will we continue with the multi-RPB model?

Regulatory Objectives

A key element of the Bill portrayed as the potential solution to several perceived problems is the introduction of regulatory objectives “as a framework against which regulatory activity can be measured and assessed”.

There has been a little refining of the objectives as originally proposed in the consultation document. They now appear (S126) as follows:

“‘Regulatory objectives’ means the objectives of:
(a) having a system of regulating persons acting as insolvency practitioners that
(i) secures fair treatment for persons affected by their acts and omissions,
(ii) reflects the regulatory principles, and
(iii) ensures consistent outcomes,
(b) encouraging an independent and competitive insolvency practitioner profession whose members:
(i) provide high quality services at a cost to the recipient which is fair and reasonable,
(ii) act transparently and with integrity, and
(iii) consider the interests of all creditors in any particular case,
(c) promoting the maximisation of the value of returns to creditors and promptness in making those returns, and
(d) protecting and promoting the public interest.”

Thus, the consultation’s suggested “value for money” objective has been replaced with reference to “high quality services at a cost to the recipient which is fair and reasonable”. However, “value for money” continues to appear large in the IA, which swings wildly from, on the one hand, conveying the sense that the introduction of a “value for money” regulatory objective will cause a sea change in regulation to, on the other hand, stating that, as RPBs say that “they already carry out an assessment of fees in monitoring visits”, they “do not anticipate this objective will add additional costs to the RPBs in terms of monitoring”.

Fees Complaints

The IA also states that “the objective makes it explicit that fee related complaints should be dealt with by the regulators”, but it states it is leaving the “how” entirely in the hands of the RPBs: “it will be for the RPBs, to create a system (whether within the existing complaints process or by combining resources to create a joint system) which adjudicates on fee issues”.

The IA sets a “high scenario” of 2,000 additional fee complaints (but with a best estimate of 300): that would be an average for each appointment-taker of three complaints every two years. However, despite this doom-saying, the IA factors in zero additional costs to the Service (in managing the Complaints Gateway) and to IPs. The IA states that the changes “should have minimal impact for individual IPs, particularly for those who already act in compliance with the existing legal and regulatory framework”. The Service does not seem to appreciate how the most compliant of IPs attracts complaints – it’s in the nature of the work – and how enormously time-consuming it can be to respond to RPB investigations, even when they end in “no case to answer”. I wonder how much work will be required to satisfy one’s RPB that the fees charged are a fair and reasonable exchange for the high quality services provided.

One consultation respondent estimated that the IP licence fee could increase by £950 pa, which prompted the IA drafter to write: “given the increased confidence and credibility to the industry which will result from a strengthened regulatory framework, is a proportionate cost for an industry which generates an estimated £1bn per annum”. In addition, the IA’s assessment of costs to the RPBs (for complaints-handling alone) shows a best estimate of £1,074 per IP, which increases to £7,184 per IP under the “high scenario”. Is this still considered a proportionate cost? It continues to sicken me that the Service seems to fail to understand the spectrum of environments within which IPs work. Yes, some do make a tidy living, but I know IPs for whom an extra £1,000 bill (let alone £7,000) would be the straw that breaks their back. For a Minister who seems so intent on “reducing a little the high bar on entry to the profession” (per her speech at the Insolvency Today conference) by introducing partial licences, which, allegedly, will encourage competition in the profession, she seems all too blind to the likely impact of burdening IPs with yet more costs; I think it will certainly threaten some sole practitioners’ survival in the industry. And for those IPs who can, inevitably the cost increase will be passed onto the insolvent estates – well done, Minister!

Will this “strengthened regulatory framework” really increase confidence in, and credibility of, the industry? Does the government feel that confidence will only increase once we see a few heads resting on platters? Well, public confidence had better improve, because the Bill will result in the Service’s hand hovering over the red button of the Single Regulator.

Partial Licences

The Small Biz Bill already makes obsolete the Deregulation Bill, which has yet even to complete its journey through the House of Lords, although principally only by adding to the Deregulation Bill’s requirements for RPBs – whether recognised for full or partial IP-licensing – by referring to the need to have rules and practices designed to ensure that the regulatory objectives are met.

Does this mean that the partial licensing debate over? The clause in the Deregulation Bill emerged intact from the House of Commons after a vote on a motion for its removal of 273 to 213. There has been some debate at the Bill’s second reading in the House of Lords, but it seems to me not nearly enough to turn the juggernaut. I find it quite striking how, on the one hand, there have been some very strong submissions against partial licensing primarily from R3 but also from the ICAEW* (which has stated that, through its own consultation process, it received “no indications of support at all” for partial licences), but on the other hand… Actually, who is fighting the “for” partial licensing corner? Why is it seen as such a great idea, where is the evidence that good people are being shut out of the market by the need to sit three exams (how many exams does it take to qualify as an accountant these days?), and has anyone with experience and knowledge of these things been arguing that partially licensed IPs will be just as skilful and competent as full licence-holders, only they will be cheaper?

* Responses on Clause 10 consultation, February 2014:

Oversight Regulator’s Powers

The Bill introduces a range of powers, which will enable the oversight regulator (aka the Secretary of State, acting by the Insolvency Service) to influence an RPB’s actions – by means of directions, compliance orders, fines, reprimands, and ultimately the revocation of recognition – but also to leapfrog the RPB in its regulatory action against a licensed IP.

The Bill’s Explanatory Notes discloses the type of conditions that might prompt the Secretary of State to issue directions to an RPB: “if the RPB has failed to address the Insolvency Service’s concerns following a review of the way the RPB handles its complaints or a RPB’s failure to carry out a targeted monitoring visit of its IPs where the Insolvency Service has requested that it be done”. The Memorandum adds: “the Secretary of State will also be able to apply to the court to require an RPB to discipline an insolvency practitioner if disciplinary action appears to be in the public interest”.

When would the SoS apply to court directly to sanction an IP, rather than leave it to the IP’s RPB? The IA summary states: “where public confidence in the regime is undermined and could have serious consequences for the reputation of the profession. An example is where the activity undertaken impacts across all regulators and is so serious that action is required immediately, rather than wait for each regulator to investigate the case and come to potentially different findings”.

Personally, I find these moves worrying. In every Insolvency Service Annual Review of Insolvency Regulation, there is reported a clutch of complaints made to the Service about RPBs and, almost without exception, the Service’s investigations reveal nothing untoward. In addition, the Reviews disclose complaints made by the Service to the RPBs about individual IPs: these complaints appear to be processed by the RPBs adequately. Is this not the way things should be handled? It seems to me to be wholly inappropriate to side-step due process on the simple ground that public confidence appears to be undermined. Considering that the objective is to shore up public confidence in the existing regulatory regime, it seems to me that taking an issue out of the RPB’s hands is one sure way of destroying any confidence the public may have. If the Service were ever tempted to exercise such a power, it would seem to me that the nuclear option of a single regulator could become almost inevitable.

Single Regulator

What would prompt the SoS to designate a single regulator? The Bill’s Explanatory Notes state: “the power to move to a single regulator will only be used if the changes proposed by clauses 125 to 131 [i.e. including the regulatory objectives and the Service’s powers to sanction or direct the RPBs] do not succeed in improving confidence in the regulatory regime for insolvency practitioners”. The Memorandum also states: “the changes proposed by clauses 125 to 131 will be reviewed with a reasonable time of commencement. If there is still a lack of confidence in the insolvency practitioner regulatory regime, then the Secretary of State will consider whether to act to bring an end to the system of self-regulation by creating a single independent regulator which will apply consistent standards of regulation and will not be perceived to act in the interests of insolvency practitioners over creditors.”

I appreciate that often members of the public – and not a few IPs – express bemusement that the regulation of such a small industry should be shared amongst seven bodies and that there tends to be a natural scepticism towards the idea that a body funded (even in part) by IPs, some of whom also sit on regulatory committees, can be sufficiently independent to regulate its members satisfactorily (although I wonder how else anyone expects an insolvency regulator to be funded). However, whatever one’s criticisms are of the existing regulatory structure, I struggle to see how a single regulator would be certain to do a better job. But maybe it’s only the perception that’s important.

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Last Chance to Speak Up on Partial Licences


In December, I reported on the current position of the Deregulation Bill ( 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 (

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 (, was pretty-much the norm, with others being even more vociferous, e.g. Frances Coulson’s “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.


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: 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”.)