Tuesday’s announcement from the Insolvency Service reminded me that I’d buried its 2012 Annual Review of IP Regulation deep within a pile of court judgments that I’ve also not blogged about. I’ll tackle the easy job here: let’s look at the recent IS/BIS announcements…
“New Measures to Streamline Insolvency Regulation Announced” (1 July 2013)
SoS authorisations to come to an end
The Business Minister, Jo Swinson, announced proposals to transfer the regulation of SoS-authorised IPs to “independent regulators” in the interests of removing “a perceived conflict of interest” and in view of the limited powers of sanction when compared with the RPBs’.
This is not new. At the end of 2011, Ed Davey – two Ministers’ ago – described the Government’s intention to remove the Secretary of State from direct authorising, which was a conclusion of the consultation into IP Regulation. This also was a recommendation emanating from the OFT’s study into corporate insolvency, which was published in June 2010. And the idea has been bubbling along for years earlier than that.
However, perhaps I should not focus on how long it is taking the Department to progress this change; finally it has a name: the “Deregulation Bill”.
The announcement also referred to proposals to allow “IPs to qualify as specialists in either corporate insolvency or personal insolvency, or both, [which] will reduce the time and money it takes to qualify for those who choose to specialise. This will open up the industry to more people and improve competition”.
This also is not new. Almost as soon as S389A was introduced via the IA2000, people have been asking for it to change. That Section sought to allow IPs to specialise by only authorising them to act as Nominee and Supervisor of (Company or Individual) Voluntary Arrangements. The regulatory structure was never put in place to allow such licences to be issued – the Secretary of State never recognised any bodies for the purpose of issuing such limited licences – but it was also soon appreciated that there would be little use in such licences: for example, if someone wanted to administer an IVA, it would also be useful for them to be able to become a Trustee in Bankruptcy, but this is not possible under S389A.
However, there was also much clamour from many IPs who felt that it was dangerous to allow IPs to specialise only in one field of insolvency. Many felt that the knowledge of someone who has passed only the personal insolvency JIEB paper was insufficient to enable them to deal successfully with the range of debtor circumstances that likely they would encounter even if they only took formal appointments on IVAs and Bankruptcies.
It certainly seems that the current Government proposals, which highlight the benefit of a fast track to a licence – 1-2 years for “the new qualifications” – will lead to limited-licence IPs narrowing their field of vision at the JIEB-stage.
Although there are many IPs who only take appointments in either the personal or corporate insolvency arena, I doubt that many would have chosen a limited licence route, even if that had been available. The corporate specialists tend to have got where they are either through a relatively many-runged large firm ladder or by having begun as a jack-of-all-trades, albeit with a corporate emphasis, in a smaller firm. Of course, the IPs who have lived and breathed IVAs for much of their professional life may have taken advantage of a limited licence route and they are unlikely to be taking on the complex bespoke IVA cases for which knowledge of corporate insolvency might be valuable, so personally I don’t feel too strongly about this being a bad idea… although I’m reluctant to call it a good idea, and I am not convinced that the profession needs to be opened up to more people and competition improved, does it?
Other aspects of the Deregulation Bill
The press release mentions a couple of other planned changes regarding the SoS’s and OR’s access to information on directors’ misconduct and the choice of interim receivers. Also hidden in the small print is reference to the Government’s proposals “to strengthen the powers of the Secretary of State as oversight regulator” – I’m not quite sure what they are, though…
“Consumers benefit and business to save over £30m per year from insolvency reforms” (5 June 2013)
Business Minister, Jo Swinson, said: “An easy route to complain is important for consumers… This new Complaints Gateway will help consumers dealing with the insolvency industry to get speedier resolution of problems and easier access to the right information”.
“An easy route”? Firstly, the Complaints Gateway does not include complaints about Northern Ireland insolvencies. Nor does it include complaints against IPs licensed by the SRA/Law Societies. Nor does it, presumably, cover complaints about an IP’s conduct in relation to Consumer Credit Licensable activities..? Or at least it won’t if the IP/firm has their own Consumer Credit Licence… I’m not certain about IPs covered by a group licence… clear as mud!
“Speedier resolution”? Well the Service’s Complaints FAQs admit that complainants will normally be informed whether or not their complaint is being passed to the relevant authorising body within 15 working days of the Gateway receiving the complaint”. That’s a 3-week delay that would not have occurred under the old system.
Having said that, if the Complaints Gateway at least makes the public perceive IP regulation as more joined up and less self-serving than has been the perception to date, then that’s great!
Red Tape Challenge Outcomes
The press release details other proposed changes, although I do wonder at the “savings of over £30m per year” tagline:
• “Removing the requirement for IPs to hold meetings with creditors where they are not necessary”. Final meetings, presumably? With the exception of S98s, meetings are never actually held, are they, so I can’t see this measure resulting in less work/costs for IPs?
• “Enabling IPs to make greater use of electronic communications, for example making it easier to place notices on websites instead of sending individual letters to creditors”. So perhaps moving away from an opt out of the snail mail process to a default of website-only communication..? Anything less than that is pretty-much what we have already, isn’t it?
• “Allowing creditors to opt out of receiving further communications where they no longer have an interest in the insolvency.” Hmm… personally I can’t see creditors bothering to put “pen” to “paper” and opt out…
• “Streamlining the process by which IPs report misconduct by directors of insolvent companies to the Secretary of State, enabling investigations to be commenced earlier.” Well, yes, a much-reduced wishlist from the Service would be welcome, although that doesn’t require legislation, just re-revised Guidance Notes. Not sure how else you can “streamline” the process unless you make in online… but is that really going to make much difference..?
• “Removing the requirements on IPs to record time spent on cases, where their fees have not been fixed on a time cost basis, and to maintain a separate record of certain case events.” – good, about time too! No more Reg 13s..? What will the RPB monitors find to have a gripe about now?!
• “Removing the requirement for trustees in bankruptcy and liquidators in court winding-ups to apply to creditor committees before undertaking certain functions, to achieve consistency with powers in administrations”
• Radically reducing the prescriptive content required for progress and final progress reports – sorry, this one is a fiction; it’s my own suggestion of how a huge chunk of unnecessary regulation might be removed in an instant!
2012 Annual Review of Insolvency Practitioner Regulation (June 2013)
This was released without a murmur, slipped into the notes of the press release above. It’s not really surprising that it created little noise – has everyone had enough of pre-pack bashing for now? – but I thought I’d try to extract some items of interest.
Monitoring of SIP16 Compliance
Given that only 51% of SIP16 statements were reviewed by the Service during the first six months of 2012, it would seem to me that the decision to move away from box-ticking SIP16 compliance was made some time before it was abandoned half way through 2012, but at least the Service could report that their work was “in line with [their] previous commitments”. Consequently, I really can’t get excited about the Service’s findings on their SIP16 compliance monitoring, although it still irritates me to read that the Service considers IPs have not complied with SIP16 because they have not provided information “as to the nature of the business undertaken by the company”, which is not a SIP16 requirement (and I cannot see that this is essential to explaining every pre-pack) but only appears in Dear IP 42.
Monitoring of pre-packs using SIP16 disclosures
In the second half of the year, the Service reports that they “moved to sample monitoring of the pre-pack itself in order to identify whether there is any evidence of abuse of pre-packs”.
The statistics are interesting. Out of 42 cases referred to the authorising bodies, over 80% of them, 34, related to IPs authorised by the Secretary of State. Given that the SoS authorised less than 5% of all appointment-taking IPs in 2012, that’s a fair old hit-rate. It has to be mentioned, however, that the 34 referrals involved only six IPs, so perhaps they are zoning in on particular IPs who seem to attract a disproportionate amount of criticism. It is a shame that, although the report describes the outcome of referrals to the RPBs, nothing is mentioned about the outcome of these 34 referrals to the SoS. Perhaps we will read it in next year’s regulatory report… or perhaps the Service hopes that the plans to drop their authorisation role will intervene…
It is also a shame that the Service does not report on the outcome of the 23 complaints on pre-packs/SIP16 received in the year from external parties; it mentions only that six were referred to the RPBs. The report’s Executive Summary states that “pre-pack administrations continue to cause concern amongst the unsecured creditor community”, but it would be very interesting to learn exactly what kinds of concerns are being reported. In view of the fact that 17 complaints did not make it past the starting post after the Service had only “considered the nature of the complaint”, it would seem to me that there is still a lot of dissatisfaction out there about the process itself, which unfortunately is sometimes translated into suspicions of IP misconduct. I will give the Service some credit, though, as their website now includes some FAQs on pre-packs that do attempt to counter the “it just cannot be right!” reaction.
A good news point to take away from the report is: “we have not found evidence of any widespread abuse of the pre-pack procedure”.
Themed Review on Introducers
It is good to see the Service taking action to tackle websites that misrepresent professional insolvency services, although the limit of the Service’s powers appears evident. The report indicates that five websites, which were not identified as being connected with an IP, were changed as a consequence of the Service’s requests, but it seems that several more likely made no changes. The report mentions recourse available to the Advertising Standards Authority and recent coverage of an ASA ruling (www.insolvencynews.com/article/15416/corporate/insolvency-ad-banned-after-r3-complaint), albeit on the back of an R3 complaint, does show that this can generate results.
The report indicates that IPs can expect the RPB monitors/inspectors to be more inquisitive in this area: the Service believes that RPB monitors should be “robustly questioning insolvency practitioners as to their sources of work and testing the veracity of answers to ensure confidence that insolvency practitioners are complying with the Insolvency Code of Ethics”.
Regulatory and disciplinary outcomes
Let’s look at the visit stats for 2012: IS stats 2012
Hmm… does this hint at perhaps another reason why the SoS might think the time is right to drop authorising..? I’m referring to the average number of years between visits – 5.82 years for SoS-authorised IPs compared to an average of 2.92 for the RPBs as a whole – not the percentage of IPs subject to targeted visits, as I think that’s a two-edged sword for authorising bodies: it could mean that you have more than the average number of problem cases or it could mean that you are tougher than the rest.
The only other points I gleaned from this section were:
• The ICAEW clearly takes its requirement for IPs to carry out compliance reviews very seriously: three out of its four regulatory penalties were for failures to undertake compliance reviews.
• The heftiest fines/costs resulting from the complaints process were generated as follows:
o £10,000 fine for failure to register 884 IVAs with the Insolvency Service
o £10,000 fine for failure to comply with the Ethics Code by reason of an affiliation with a third party website that contained misleading and disparaging statements about IPs and the profession
o £4,000 penalty and £30,000 costs for taking fees from a bankrupt as well as being paid by the AiB as agent
• According to the Executive Summary, apparently there have been concerns about “the relatively low number of complaints that are upheld and result in a sanction”… so can we expect the RPBs to “please” the Service by issuing more sanctions in future or will the RPBs satisfy the Service that their complaints-handling is just and that it is simply that there is nothing in the majority of complaints?
The Service intends to look further at the “considerable concern in relation to ensuring that insolvency practitioners consult employees as fully as is required by law in an insolvency situation”. I think the case of AEI Cables v GMB (http://wp.me/p2FU2Z-3i) demonstrates the issues facing a company in an insolvency situation – something has to give: which statutory duty takes precedence? – and I cannot believe that the position for IPs is any easier. It will be interesting to learn what the Service discovers.
And of course, we’re all waiting expectantly for the outcome of the Kempson review on fees; the Service’s regulatory report states: “A report is expected by July”…