Insolvency panel arrangements risk creating conflict of interest, says lawyer

Panel arrangements between banks and insolvency practitioners (IPs) run the risk of creating a conflict of interest, according to Joanna Ford, partner, commercial dispute resolution, at law firm Cripps Pemberton Greenish.

The use of panel arrangements is aimed at streamlining the process for banks (most often the secured creditor in an insolvency case) to bring in an IP when a company goes into liquidation or administration. Ford, a legal expert in insolvency, highlights that this can result in a problematic balance of power because IPs are required to act in the interests of all creditors, not just for the banks.

“If a bank is involved [in an insolvency case], then they invariably get their preferred insolvency practitioners appointed and you have to be in the club. That to me, doesn’t seem right,” says Ford. “If you got rid of panel firms, then there wouldn’t be that level of allegiance.”

However, Ford cautions against seeing the banning of panel arrangements outright as a silver bullet, arguing that many of the issues at play would still remain.

“I don’t think it would do away with it completely, because the banks would still be engaging and paying professionals to do their work for them, but there perhaps wouldn’t be quite such a close relationship,” she says.

There are overriding duties which IPs will point to as evidence for their independence and professionalism. They must act in accordance with the law and the insolvency practitioners code of ethics states they must serve the interests of all creditors, as Ford points out.

“But that doesn’t mean to say that IPs never be in a position of conflict or there may not be occasions where they don’t act in the way that they should and I think in those circumstances, I would agree that there may not be the necessary checks and balances in place to scrutinise that and do something about it,” Ford says.

Ford believes the profession as a whole has become much more tightly regulated and has moved on from its historical reputation as what some people thought of as a “murky” profession.

Ford’s comments come just weeks after Kevin Hollinrake MP and chair of the All Party Parliamentary Group (APPG) for Fair Business Banking told Accountancy Age that there are “massive” conflict of interest issues within the insolvency profession. At the same time, BDO is currently in the middle of a £250m negligence claim over their conduct in the administration of One Blackfriars Limited.

During his interview with Accountancy Age, Hollinrake called for a new insolvency regulator to be set up in a similar vein to the UK’s employment tribunal system, something Ford tentatively agrees with.

“In principle, I don’t necessarily think it’s a bad idea. The question would be that the devil is always in the details as to how it would work and who would be able to refer the cases,” she says.

Ford warns against having a tribunal where anyone can bring a claim and urges us to bear in mind the difficult position that IPs often find themselves in as they can often be seen as “the bad guys”, but more often they are pursuing serious claims against incompetent or even fraudulent directors for the benefit of a company’s creditors.

“I think the problem with a tribunal where anybody can bring a claim is it would just be out of control.

“What I don’t think you want to do is open up the floodgates to anybody just being able to hold insolvency practitioners over the coals because at the end of the day, they do a really difficult job under difficult circumstances,” Ford adds.