Insolvency Oracle

Developments in UK insolvency by Michelle Butler


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InsS Annual Review, part 2: IP number is down but complaints are up

The number of IPs just keeps on falling, but complaints have increased.  What is going on?

In this blog, I explore whether the Insolvency Service’s 2018 report on IP regulation provides the answer.  Also, is it just a blip?  And could this analysis help with the Service’s recently-issued call for evidence on IP regulation?

The Insolvency Service’s report can be found at: https://www.gov.uk/government/publications/insolvency-practitioner-regulation-process-review-2018

In brief, the report indicates that, in 2018:

  • Despite insolvency case numbers increasing, IPs continued to leave the profession
  • Actions that most often appeared in RPB sanctions were: poor case progression/closure; faults in administering IVAs; and breaches of statutory filing/reporting requirements
  • Only two complaints (of the 381 referred to the RPBs) had been received from creditors! As usual, debtors were the most frequent complainers, but complaints lodged by directors and IPs showed quite an increase
  • Over 50% of the complaints lodged at the Gateway did not make it through to the RPBs
  • On average, one in three IPs received a complaint, but this figure jumped to more than one in every two for IPA-licensed IPs
  • Could this be because the IPA licenses all the IPs in the top six volume IVA provider firms (who registered over 75% of all new IVAs last year)..?
  • Over 50% of all complaints referred to the RPBs related to IVAs

 

Case numbers go up but IP numbers keep on going down

There has been a significant increase in insolvency case numbers over the past 3 years.  There were 20% more corporate insolvencies and over 40% more personal insolvencies started in 2018 than the numbers started in 2015.  Isn’t now a good time to be in insolvency..?

These statistics reflect my personal experience: over the past year, I have known of IPs who have left the profession and they’ve not all been of retiring age.  What is happening?

There’s no doubt in my mind that competition has become fiercer.  I have seen more occasions of IPs being toppled from offices and the ORs seem all the more reluctant to allow cases to leave their hands.  I have also seen some new ambulance-chasers on the field.

I think that small firms are struggling in this market.  It seems to me that larger firms seem hungrier to fight for smaller cases than they used to be.  In addition, 2018 was not a regulation-light year: it seemed that simply getting GDPR-ready was someone’s full-time job for several months, which was not at all easy for smaller firms to stomach.  Recruitment and retention are also difficult for smaller firms: new talent is attracted to big names, big cities, meaty cases and varied portfolios.

Fewer IPs and more cases mean that each IP has on average a larger caseload (or it could be that the IPs are closing them quicker, but from my personal experience, I don’t think this is happening).  If insolvency cases continue to increase, which I think is generally expected, then I think case progression is going to become a bigger concern.  Of course, IPs can always look to surround themselves with a larger team to deal with their larger caseloads, but we all know that this tends not to happen: in times of plenty, old cases tend to be shelved while people concentrate on the new excitements.

 

Is case progression already an issue?

The Insolvency Service’s report gives brief descriptions of every RPB sanction issued (including a couple that weren’t even published on .gov.uk – not sure how that happened!).  On categorising these summaries, I have come up with the following failures that appear most frequently in the disciplinary sanctions reported:

  • 7 case progression / closure issues (including one failure to realise assets and two failures to pay a dividend – not sure if these were delays or entirely overlooked)
  • 6 IVA-related faults (not including case progression / closure)
  • 6 statutory filing/reporting breaches
  • 3 SIP16 breaches
  • 3 faults in relation to directors’ RPO claims
  • 3 fee-related errors
  • 3 confidentiality breaches (perhaps related?)
  • 2 PTD-related faults
  • 2 SIP2 failures to investigate or to secure books and records

This shows that failing to progress cases promptly or appropriately can get you into hot water.  So too can failing to meet the rules on filing and reporting: four of the six instances listed arose because progress reports were not filed on time (or at all).

 

What are people complaining about?

The Top 3 topics continue to be ethics, poor communication and SIP3 issues, with the latter now counting for 34% of all complaints recorded by subject, up from 25% last year:

(Note: a complaint may appear in more than one category.  There were a total of 381 complaints referred in 2018 – see further below.)

Ok, that’s not a surprise.  We all know that the Insolvency Service’s report in September 2018 pulled no punches when it came to the RPB-monitoring of volume IVA providers.  It is also unsurprising that people are not directly complaining about late or missing progress reports, but as the sanctions demonstrate, if a statutory filing/reporting breach is identified in the course of the RPB’s investigations into a complaint, don’t be surprised if this is added to your charge sheet.

What we should perhaps be a little concerned about is that complaints on areas that attract a lot of negative press and criticism – SIP16/pre-packs and remuneration – have increased.  True, they still pale into insignificance when compared with the total number of complaints (they account for only 16 of the 429 complaints recorded by subject), but this is quite a jump from the one complaint in 2017.

 

Who is complaining?

I think this shows an interesting shift:

With IVAs featuring so heavily in complaints, it is not surprising that debtors are the most frequent complainant.  More bankruptcies were complained about in 2018 too (up from 31 to 75), which no doubt contributed to the increase in complaining debtors.

What I found interesting was that very few creditors complained last year – only two!  Even if we add in complaints from employees, this only comes to seven.  However, the number of complaints lodged by IPs more than trebled to 38.  Ok, this is still a relatively small number, but I think it hints at an interesting development in self-regulation: RPB monitors may only visit you once every 3 years or so, but your peers are watching you all the time!

 

How many complaints get through the Gateway?

(Note: the Gateway started in June 2014, so I have pro rated the partial 2014 figure to estimate for a full year.)

Complaint numbers are back up to the 2016 level: in 2016, 847 complaints were lodged and in 2018 the number was 830.  However, many more complaints fail to make it through the Gateway.  In fact, every year, the number rejected/referred has increased, even though the trend in complaint numbers shows an overall decrease.  In 2017, 48% of complaints were rejected or closed and this percentage increased to 52% last year.

 

Why are complaints not making it through the Gateway?

In their 2018 report, the Insolvency Service added a number of new reasons for rejection/closure, which personally has helped me to understand the operation of the Gateway better.  For example, I hadn’t appreciated that complaints about conduct that happened over 3 years ago are rejected.

This graph also demonstrates that a large number of complaints (145) – and a great deal more than in 2017 – are rejected because the complaint is about the insolvency process.  Again, given that most complaints are lodged by debtors and directors, this perhaps indicates that in many cases IPs may be upsetting the right people.  But it might also suggest that some IPs could do a better job of explaining the consequences of insolvency.

 

What are an IP’s chances of receiving a complaint?

Yes I know that some IPs work in a field that is more likely to attract criticism, but on average how many IPs received a complaint last year and does this average change much depending on one’s licensing body?

This shows that, generally speaking, one out of every three IPs receives a complaint.  Of course, this assumes that complaints are only about appointment-takers and that complaints are evenly spread about.

However, it also shows a large range in averages across the RPBs, with less than one in five IPs for all except the IPA, which shows an average of over one complaint for every two IPs.

The IPA has publicised that “the majority of IPs who work on IVAs are regulated by the IPA” (IPA press release 29/11/2018)… although, as the IPA does not license the majority of all IPs, a large proportion of which will have at least one IVA, presumably they’re meaning those who do IVAs in volume.  Does this, along with the graph above, mean that volume IVA providers disproportionately feature in complaints?

 

How many Volume IVA IPs does the IPA license?

The Insolvency Service now publishes data on new IVAs per firm: https://www.gov.uk/government/statistics/individual-voluntary-arrangement-outcomes-and-providers-2018, which helped me out with this question.

An analysis of this list shows that the IPA licenses all the IPs registered at the Top 6 firms.  These firms alone account for over 75% of all IVAs registered in 2018.  Even if we look at the whole list of Top 14 firms (two of which no longer exist!), the IPA licenses 25 of the 33 IPs registered at these firms (with the ICAEW licensing 3 and ICAS the remaining 5, all 5 of which are located at the one firm).

So clearly then, the IPA’s complaints figures are bound to be affected by the number of IVA complaints lodged.  But this assumes that IVAs count for a large proportion of complaints.  Is this true?

 

How many IVAs are being complained about?

The following graph compares the number of IVA complaints with those about other matters:

(Note: the Gateway started in June 2014.  The way complaint numbers were published by case type then changed from those recorded by the RPBs to those referred to the RPBs from the Gateway.)

So for the first time, last year there were more IVA complaints than there were complaints about all other matters/case-types combined.  It’s no wonder therefore that the IPA has recorded many more complaints per IP than any other RPB and it’s not surprising that the IPA has sought to recruit more regulatory staff… and that they have warned IPA members that fees may be increasing this year!

I appreciate that the Insolvency Service did (finally!) wake up to some of the issues around regulating volume IVA providers last year and I accept that the IPA has made some public announcements about how they have been working towards changing their monitoring regime for the IPs in these firms.  However, as someone who has spent the last few years almost exclusively helping IPs in “traditional” insolvency practices, I do wonder if a disproportionate amount of time has been spent by the regulators (and government and the press) in criticising, legislating and threatening to legislate to remedy other apparent ills of the insolvency profession.

 

Is the solution a change in regulatory approach?

Interestingly, the Service’s just-released call for evidence on IP regulation (pg 15 of the doc at https://www.gov.uk/government/consultations/call-for-evidence-regulation-of-insolvency-practitioners-review-of-current-regulatory-landscape) focuses in on the different firm structure that exists in some IVA specialists where the IP is an employee.  This leads them to ask the question of whether firm-regulation, rather than individual IP-regulation, may be more appropriate in some sectors.  While I think that the Service definitely has a point, I do think that there are other fundamental differences in “volume IVA providers” – the hint is in the name – that also demand a fundamentally different regulatory approach.

 

In my next blog post, I’ll look more closely at complaint – and monitoring – sanctions.

 


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The Insolvency Service’s To-Do List: Going Nowhere Fast?

I’ll start my review of the Insolvency Service’s Annual Review of IP Regulation in reverse order this year.  Let’s first look at the progress made on the InsS’ 2017 to-do list.

Here’s a comparison of items listed in their 2017 Report with their 2018 Report, which has just been published (at https://www.gov.uk/government/publications/insolvency-practitioner-regulation-process-review-2018):

Of course, Ministers have had a few other things on their mind over the past year… but the landscape has not changed much since May 2018 when the 2017 report was published, so I would have hoped that the Insolvency Service would have anticipated realistic timescales back then.

 

So, if the above projects have not progressed as anticipated last year, what has the InsS achieved in 2018 and are they proposing any other outputs in the year ahead?

  • Taking on the role of a direct regulator?

It all sounds a bit secret squirrel, but the report’s overview emphasises the Service’s investigatory work.  It seems that their staff have identified and been referring “potential criminal offences by insolvency practitioners”, they “have been making effective use of information gathering powers to investigate areas of concern leading to a number of referrals to appropriate bodies” and they have “used our powers to undertake our own enquiries on a number of occasions”.  They expect to “report on what we have found when we are able to, given the progress of the investigation”.

  • The Single Regulator question

Of course, this is going to be the focus of a lot of the Service’s efforts.  I found the report alarming: it states both that they are considering “whether or not to consult on a single regulator” and that they are hoping to reach a position on “a recommendation on whether or not to exercise the power” to create a single regulator.  So… could they decide on the single regulator question without consultation?!

In any event, however, they are expecting “to publish shortly” a “formal call for evidence”, so at least we may have an opportunity to contribute something.

  • Last year’s report on RPB monitoring

I didn’t have a chance to blog on the subject, but I’m sure the Service’s September 2018 report on RPB monitoring did not pass you by.  The report was pretty scathing about much of the monitoring of volume IVA providers and included many recommendations, largely focusing on the extents to which they felt RPBs should be investigating, and taking to task, IPs who appear to be failing: to provide appropriate advice; to pay fees and expenses from estates that are fair and reasonable; and to manage the ethical threats arising from relationships with introducers and service-providers.

The Service’s 2018 Annual Report states that they are in the process of reviewing how the recommendations from the earlier review are being implemented by the RPBs and that this would inform their Single Regulator work – no threat there, then!

  • SIP revisions

So… no sign of a revised Ethics Code, but we do learn about the JIC’s work on revising SIPs.  In their in-box at the moment are:

    • SIP3.2, which is expected to be out for consultation “later this year”. Apparently, the revision work has come about “due to concerns about certain types of large CVAs where better and timelier information could be given to creditors”.  Interesting… but don’t we have the Act and Rules to tell us what IPs must send to creditors and by when?
    • SIP7 – a consultation on this is also expected “later this year”.
    • SIP9 – on the back of the concerns arising from the review of RPB monitoring of volume IVA providers and the “industry concerns over the charging of certain expenses and disbursements, primarily in the volume IVA sector” (so not just IVAs then..?), there has been ongoing work “to consider if a review of SIP9 is necessary”. The report also states that there has been work with the RPBs and R3 “to obtain data in order to assess the impact that possible changes to the way some charges ought to be applied would have on smaller firms”.  Debates over what are valid expenses/disbursements and what should be treated as an overhead have been rumbling for several years now and if the question is still “if” SIP9 should be changed, then it seems to me that an outcome could still be a long way from emerging.

 

So, the Service’s to-do list never gets any shorter, does it?  And it seems to me that the usual project-management rule applies to insolvency projects: estimate the timescale and then double it!

In my next blog, I’ll look at the complaints and monitoring stats… or I may get back to my 50 Things list…

 

 


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A Closer Look at Six Years of Insolvency Regulation

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Have you ever wanted evidence-based answers to the following..?

• Which RPB issues the most – and which the least – sanctions?
• What are the chances that a monitoring visit by your authorising body will result in a sanction or a targeted visit?
• How frequent are monitoring visits and is there much difference between the authorising bodies?
• Do you receive more or less than the average number of complaints?
• Are there more complaints now than in recent years?

Of course, there are lies, damned lies, and statistics, but a review of the past six years of Insolvency Service reports on IP regulation provides food for thought.

The Insolvency Service’s reports can be found at: http://www.bis.gov.uk/insolvency/insolvency-profession/Regulation/review-of-IP-regulation-annual-regulation-reports and my observations follow. Please note that I have excluded from my graphs the three RPBs with the smallest number of IPs, although their results have been included in the results for all the authorising bodies combined. In addition, when I talk about IPs, I am looking only at appointment-taking IPs.

Regrettably, I haven’t worked out how to embed my graphs within the text, so they can be found here. Alternatively, if you click on full article, you will be able to read the text along with the graphs.

Monitoring Visits

How frequently can IPs expect to be monitored and does it differ much depending on their authorising body?

The Principles for Monitoring set out a standard of once every three years, although this can stretch to up to six yearly provided there are satisfactory risk assessment processes. The stated policy of most RPBs is to make 3-yearly visits to their IPs. But what is it in reality and how has it changed over time? Take a look at graph (i) here.

This graph shows that last year all RPBs fell short of visiting one third of their IPs. However, the Secretary of State fell disastrously short, visiting only 8% of their IPs last year. I appreciate that the Secretary of State expects to relinquish all authorisations as a consequence of the Deregulation Bill, but this gives me the impression that they have given up already. Personally, I would expect the oversight regulator to set a better example!

Generally-speaking, all the RPBs are pretty-much in the same range, although the recent downward trend in monitoring visits for all of them is interesting; perhaps it illustrates that last year the RPBs’ monitoring teams’ time was diverted elsewhere. Fortunately, the longer term trend is still on the up.

What outcomes can be expected? The Insolvency Service reports detail the various sanctions ranging from recommendations for improvements to licence withdrawals. I have amalgamated the figures for all these sanctions for graph (ii) here.

Hmm… I’m not sure that helps much. How about comparing the sanctions to the number of IPs (graph (iii) here).

That’s not a lot better. Oh well.

Firstly, I notice that the IPA has bucked the recent downward trend of sanctions issued by all other licensing bodies, although the longer term trend for the bodies combined is remarkably steady. I thought it was a bit misleading for the Service report to state that “the only sanction available to the SoS is to withdraw an authorisation”, as that certainly hadn’t been the case in previous years: as this shows, in fact the SoS gave out proportionately more sanctions (mostly plans for improvements) than any of the RPBs in 2009, 2010 and 2011. Although ACCA and ICAS haven’t conducted a large number of visits (30 and 25 respectively in 2013), it is still a little surprising to see that their sanctions, like the SoS’, have dropped to nil.

However, the above graphs don’t include targeted visits. These are shown on graph (iv) here.

Ahh, so this is where those bodies’ efforts seem to be targeted. Even so, the SoS’ activities seem quite singular: are they using targeted visits as a way of compensating for the absence of power to impose other sanctions?

Complaints

The Insolvency Service’s report includes a graph illustrating that the number of complaints received has increased by 45% over the past three years, with 33% of that increase occurring over the past year. My first thought was that perhaps the Insolvency Service’s Complaints Gateway is admitting more complaints into the process, but the report had mentioned that 22% had been turned away, which I thought demonstrated that the Service’s filtering process was working reasonably well.

Therefore, I decided to look at the longer term trend (note that the number of IPs has crept up pretty insignificantly over these six years: a minimum of 1,275 in 2008 and a maximum of 1,355 in 2014). Take a look at graph (v) here.

So the current level of complaints isn’t unprecedented, although why they should be so high at present (or indeed in 2008), I’m not sure. It also appears from this that the IPA has more than its fair share, although the number of IPA-licensed IPs has been growing also. Let’s look at the spread of complaints over the authorising bodies when compared with their share of IPs (graph (vi) here).

Interesting, don’t you think? SoS IPs have consistently recorded proportionately more complaints. Given that the SoS has no power to sanction as a consequence of complaints, I wonder if this illustrates the deterrent value of sanctions. Of further interest is that the proportion of complaints against IPA-licensed IP has caught up with the SoS’ rate this last year – strange…

Moving on to complaints outcomes: how many complaints have resulted in a sanction and have the RPBs “performed” differently? Have a look at graph (vii) here.

At first glance, I thought that this peak reflected the fact that fewer complaints had been received – maybe the actual number of sanctions has remained constant? – so I thought I would look at the actual numbers (graph (viii) here).

Hmm… no, it really does look like the number of sanctions increased in years when fewer complaints were lodged. However, I’m sceptical of this apparent link, as I would suggest that, in view of the time it takes to get a complaint through the system, it may well be the case that the 2012/13 drop in sanctions flowed from the 2010/11 reduction in complaints lodged. I shall be interested to see if the number of sanctions pick up again in 2014.

Going back to the previous graph, personally I am reassured by the knowledge that in 2013 the RPBs generally reported a similar percentage of sanctions… well, at least closer than they were in 2010 when they ranged from 2% (ICAEW) to 38% (ICAS).

The ICAEW’s record of complaints sanctions seems to have kept to a consistently low level. However, let’s see what happens when we combine all sanctions – those arising from complaints and monitoring visits, as well as the ordering of targeted visits (graph (ix) here).

Hmm… that evens out some of the variation. Even the SoS now falls within the range! Of course, this doesn’t attribute any weights to the variety of sanctions, but I think it helps answer those who allege that some authorising bodies are a “lighter touch” than others, although I guess the sceptic could counter that by saying that this illustrates that IPs are still more than twice as likely to receive a sanction from the IPA than from ICAS. Ho hum.

Overview

To round things off, here is a summary of all the sanctions handed out by all the authorising bodies over the years (graph (x) here).

This suggests to me that targeted visits seem to have gone out of fashion, despite monitoring visits generally giving rise to more sanctions than complaints… but, with the hike in complaints lodged last year, perhaps I should not speak too soon.