Insolvency Service optimism could boost the profession

INSOLVENCY PRACTITIONERS (IPs) and the Insolvency Service are at loggerheads over the number of bankruptcies in the coming year. What seems like a minor disagreement could have potentially lucrative ramifications for IPs.

The Insolvency Service believes bankruptcies will fall this year and are cutting back 500 jobs in preparation. However, IPs believe bankruptcies will increase – and if the Service is unable to provide for debt-laden individuals then the profession could be there to pick up the slack.

The Service predicts bankruptcy cases will fall to about 52,000 for 2011 compared to around 60,000 for 2010, although statistics for Q4 2010 are unavailable until 4 February. The government body believes with such a decline in bankruptcies it can feasibly reduce staff numbers by around 500 from its current 3,132.

However, IPs believe these figures are incredibly modest and fail to reflect incoming changes to the English economy.

The biggest change is the public sector budget reduction which will have far reaching ramifications. Redundancies are set to rise and many businesses, reliant on this sector such as advertising agencies, will also see their budgets reduced as they struggle to claw back money lost.

Insolvency practitioners are “baffled” as to how the Insolvency Service reached these predictions. Although bankruptcies fell last year compared to 2009, many in the profession expect them to increase in the second half of the year along with corporate insolvencies.

Melanie Giles, insolvency partner at JonesGiles said: “If they believe numbers are going to go down then they should wait until they do before making cut backs.”

“They could find themselves in a right pickle,” she added.

If the Insolvency Service cull too many positions they could find themselves unable to cope with the bankruptcies IPs don’t want, said Giles.

Before taking a bankruptcy appointment, practitioners complete an assessment of how much they can recover for creditors and in fees. If they are unable to recover their fees there is no law forcing them to take a case. Giles explains the country needs an efficient Insolvency Service to take on cases where there are no assets to recover.

Other problems to arise from cut backs include delays to cases. According to Giles currently some cases are delayed as the Insolvency Service is taking longer to hand over documents from the court and other paperwork when assigning an IP. This could soon be a regular occurrence for all bankruptcies.

There is also a risk of bankruptcies becoming too easy. The Service may not have the resources to monitor a case closely and investigate assets to ensure the creditor is receiving as much repayment as possible.

Louise Brittain, insolvency partner at Deloitte, said: “Clearly there will have to be large scale reorganisation and the Insolvency Service will have to rely more and more on the private sector to assist on cases.”

A spokesman for the Public and Commercial Services Union (PCS) said the Insolvency Service was looking at reorganising the structure and would make an announcement on its future plans in March.

A spokesman at the Insolvency Service said: “[The Insolvency Service has] launched a Voluntary Exit Scheme (VES) for its staff. Applications have been invited from all staff outside the Senior Civil Service with an expectation that we will release around 400 staff.

“The scheme has become necessary principally because of further falls in the levels of new bankruptcies, which means that we must reduce our costs to reflect falling income from insolvency case administration fees. We hope to avoid any redundancies as far as possible.”

According to most IPs this can only be a good thing if more work is passed to them. However, many are cautious that although there will be an influx of cases, these could come with delays in filing paperwork and a bankruptcy system that allows some debtors to slip through the net.