Insolvency's 'disciplined' future will benefit stakeholders

by Rachael Singh

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08 May 2012

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Marching feet

HITTING ALL INSOLVENCY PRACTITIONERS with the same stick may become the norm as Accountancy Age has uncovered a draft proposal to create a common guideline on sanctioning measures.

The profession currently has seven licensing bodies known as Recognised Professional Bodies (RPBs) and each will deliver its own investigation and reprimand as and when required. So why has the profession decided to unify on this issue, when leaving each RPB to decide reprimands has been commonplace for decades?

Licensing body Insolvency Practitioners Association (IPA) took the initiative and drew up a guide for tribunals on the level of sanctions, including fines, removing a licence and suspension, when faced with an IP found guilty of misconduct. It will also seek to categorise the seriousness of the misconduct.

Although this could add further paperwork to an already highly regulated and complicated industry, the guideline raises the issue of wildly differing approaches to reprimands in the profession.

The government's own Insolvency Service is unable to dish out a range of sanctions, its only reprimand capability is to remove a licence and ask practitioners to show 'improvement'. Other differences include the ICAEW only publishing reprimanded practitioner names dependent on the seriousness of the misconduct. ACCA does not publish names regardless.

According to the most recently available data into IP reprimands, collated in 2010, the IPA issued 41 warnings without publishing any details and fined five out of its 495 practitioners (figures accurate on 1 January 2011). This compares to two fines dished out by the ICAEW for its 686 IPs.

The lack of details leaves the public wondering is the ICAEW easier on its IPs, or the IPA tougher? Is the ICAEW failing to regulate its practitioners enough or is the IPA working them too hard?

Another example: in 2010 the IPA fined a practitioner £250 for failing to meet SIP 16 guidelines - a report following a pre-pack administration explaining why it was the best route for the business. A pre-pack is where the sale of a business is arranged prior to it entering an insolvency process.

Meanwhile the ICAEW fined one of its IPs £500 and forced him to pay costs of £2,167 for failing to meet SIP 16 requirements.

Once again, we cannot ascertain the specifics of the two cases, but a commonality of approach would create consistency and make it clearer to creditors and others the seriousness of a particular misconduct.

According to its author, IPA chief executive officer David Kerr, the common approach will "play a crucial role in the process to ensure creditors and others that make complaints that the profession can manage the process with greater transparency, and reasonably consistent outcomes".

The idea came following an Office of Fair Trading investigation into the insolvency profession. It was suggested the Insolvency Service no longer licence practitioners and concentrate on regulating the licensors. It was also suggested that a single complaints body be created so all creditors and stakeholders in a corporate or personal insolvency would know where they need to complain to. The newly formed complaints body could then hand out fines. This would create an easier model for those outside the profession to understand.

The OFT investigation highlighted complaints and reprimands can be confusing to non-insolvency professionals (unless they have been unfortunate enough to come across an insolvency before), and that more needs to be done to streamline the complaints system and increase transparency.

Although there is no clear information as to when and if the complaints body will be established, Kerr believes this document is a step in the right direction to show that the profession has taken note of the concerns.

"A published common sanctions guidance will be an important part of the new complaints regime. It will help to ensure that decisions on complaints are demonstrably consistent, and it will go a long way to improving transparency and building greater confidence in the regulation processes," said Kerr.

The trade body R3, which represents more than 90% of practitioners in the UK, believes this is a positive step for the industry.

"We need a regulatory framework that is consistent in the way it metes out the appropriate sanctions if we are to maintain confidence in the way the profession operates," said R3 president Lee Manning.

"There has long been a debate over whether practitioners receive differing disciplinary measures depending on their regulator, and this guide could help resolve that."

Sanctions that are likely to appear include the misappropriation of money could mean that a practitioner loses their licence. It categorises the seriousness of the misconduct and outlines a reprimand accordingly.

The move will make it clearer to the complaintant what sanction the practitioner is likely to face and the seriousness of it.

The Joint Insolvency Committee (JIC) will look at the draft proposals at the next meeting scheduled for the end of May. However, it is expected a public consultation or roll out will not take place until much later this year, although it is hoped that the common sanctions guidance will come into force before the end of 2012.

It is not yet clear if a full consultation of the sanctions will be put out to the general profession

The JIC is comprised of a representative of all the licensing bodies and a member of the Insolvency Service. The profession's trade body R3 and the Northern Ireland arm of the Insolvency Service are granted observer status.

Image credit: Shutterstock

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