Insolvency licensing: If it’s not broken don’t fix it

by Liz Bingham, R3

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17 Feb 2014

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IF THERE WAS ONE THING you might have been able to expect the government's Deregulation Bill to do, it would be to deregulate. Unfortunately, as far as the insolvency profession is concerned, this just isn't the case.

Tucked into the Bill (alongside legislative changes on all manner of topics, from household waste to driving instructors) are proposals to introduce "partial licences" for insolvency practitioners (IPs). Partial licences would introduce two new types of licence, which could see IPs specialising in purely corporate or personal insolvency work, rather than the current licence which encompasses both.

The problem is that not only would this add red-tape to an already comprehensively regulated profession, it would risk confusion and harm for the many small businesses that turn to IPs for help.

For thousands of smaller businesses, there is a great degree of crossover between the finances of the business and the finances of the owner. In many cases, business owners will have given personal guarantees or similar undertakings to secure funding for their company. When it comes to an insolvency situation for either the business or the owner, there is nothing "partial" about it: an IP will need a working grasp of both personal and corporate insolvency to offer appropriate advice.

In a world with partial licensing, the danger is that a corporate or personal insolvency specialised practitioner won't pick up on crucial aspects of a case that they haven't been trained to deal with, or recognise. This risks causing significant problems for the individual or business down the line and undermining confidence in the profession.

Throwing the baby out with the bath water

In 2012 IPs rescued 6,100 businesses and helped save 750,000 jobs. The role the profession plays in supporting businesses and the wider economy is crucial, and its ability to play that role depends on the business community trusting the profession to be able to provide comprehensive advice when needed. Partial licences could undermine that trust.

Of course, given that personal and corporate insolvency issues are so interwoven, it is unlikely that many IPs will opt for a partial licence. In which case, what is the point of introducing them?

Even if take-up is small, new licences will require regulators to monitor two new sets of licences on top of the licence that already exists, while practices will end up with new compliance costs to cope with.

Again, it'll be the smaller businesses that lose out. Smaller practices will find it harder to absorb the costs of extra compliance than their larger counterparts. It is also more likely that personal or corporate only cases won't be dealt with by larger firms; commercial pressures mean smaller practices need to offer both personal and corporate insolvency advice to survive.

Even for the specialised IPs at the largest firms, it would be rare for them to never come across a case that didn't require knowledge of both corporate and personal insolvency.

We understand the government's desire to boost competition and cut costs, but partial licences are not the way to go about doing this. The slender benefits contained within the proposals will only be occasionally realised, and they will be consistently overshadowed by the drawbacks.

As recommended by a committee of MPs and peers, the government is still consulting on the partial licence proposals; it is important the profession is listened to and the partial licensing proposals dropped.

Liz Bingham is president of insolvency trade body R3

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