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Interview: Insolvency Service deputy CEO Graham Horne

QUICKER, FASTER, stronger, streamlined; it sounds like the motto for the Olympic Games but in reality it is the spiel behind scrapping insolvency laws and starting again.

It is of little surprise that government body the Insolvency Service has decided it will change insolvency law, following calls from practitioners to update the old fashioned laws which have become more about box ticking than allowing practitioners to help wind-up or turnaround companies.

“We are getting lots of comments from people saying ‘you are amending amendments and the rules are looking a bit stitched together, shouldn’t you now modernise it?'”, explains Graham Horne, deputy chief executive of the Insolvency Service (pictured).

The UK is about to embark on the greatest transformation of the rescue culture since the introduction of the Insolvency Act in 1986 and its inception in 1940, and has been passed to the safe hands of insolvency veteran Graham Horne. He has been with the government body for more than 15 years and knows all the complaints, bugbears and strengths of the Act and the service itself.

Top of his list of changes, which are currently under consultation, is the need for a technological revolution. Although technology is available to communicate with creditors and stakeholders electronically, the statute prevents it from being used effectively. Practitioners must send letters to creditors, which can run into the thousands in larger cases.

“You can look at things via email and a lot of people prefer their communications like that. Through that approach you can take out a lot of the cost,” says Horne.

He expects the changes, along with the government red-tape challenge, to take out unnecessary legislation and save £36m annually from the insolvency process.

Victorian legacy 
Some of the main changes include: using plain English to make the rules easier to understand and to improve consistency across the procedures; making it easier for documents to be delivered electronically; and removing shareholders and those under a duty to contribute to unpaid share capital contributories from the list of people who can be appointed to a liquidation committee.

“A lot of the older rules tend to hark back to Victorian legislation,” he says. For example, it is still necessary to go to court to file for administration even though practitioners are already officers of the court.

“Do you really need court approval for certain processes, do you really need to go and file that at court, do you need to have physical meetings with creditors?” he asks.

“We can achieve exactly the same end, bearing in mind we are now in an age of digital communication.”

Horne’s task of throwing the book on insolvency law out the window will see 24 amendments made into one rule. He is also proud of cutting out the meaningless language found in the law, hoping to make the new rules “free of archaic, and often impenetrable, language”, such as poney, defray, adduce, furnish.

“They’re words that worked perfectly well in 1940 but they are not very modern”, he says. There is even hope that the term chairman will be relabelled chair making it gender neutral too, although Horne admits this is not part of the current proposals but will form part of future amendments.

Nevertheless, Horne is comfortable in explaining the rulemakers are not infalliable and future amendments will be needed. Modern rules can be amended rather than trying to “tack” things onto the old rules.

Although he is open to listening to stakeholders, practitioners and lawyers, he is firm that change is going to take place, stating “absolutely it is gonna happen”.

The consultation closes on 24 January, and Horne says those wishing to make their thoughts heard will be taken into consideration but warns they must understand that “as long as what they are suggesting meets our overall objectives we are more than happy to listen”.

Pre-packaged concern
The overhaul comes at a busy time for the service. Next year will see the publication of the second review into pre-pack administrations in three years, while the Service is also contending with changes to pre-pack box ticking report, SIP16.

Horne suggests there is never a good time to make such a huge change and the body shouldn’t procrastinate when an update is so desperately needed.Indeed, if it were to wait for a better time, it could end up waiting forever, which is what got the service into the mess of having rules that are not fit for purpose in the first place.

“There comes a time when you just have to say ‘well look there is a need to simplify modernise and consolidate. We’re going to take that opportunity now, and things are never going to be set in stone,'” Horne explains.

“We appreciate there are always concerns about pre packs, which is why ministers have commissioned a review.” 

One of the main reasons pre-packs – instances where a company is marketed and a sale lined up prior to it entering an insolvency process and sold immediately on appointment of administrators – courts such controversy is because creditors find out about the administration when the business is sold. Although it can save jobs, protect a brand and keep the business value, such as in cases like music label EMI and driving school BSM, its secrecy causes great suspicion.

“The review is all about seeing how we check that pre-packs are a valuable tool to rescue a business. And is there anything happening currently in the way that pre-packs work that does cause detrimental harm?”

But that’s not the only change to hit the service; earlier this year former insolvency minister Ed Davey implemented changes to what was a complicated complaints process. Stakeholder that wanted to complain needed to track down the regulator of the practitioner, complain to them and, if unsatisfied, take it to the Insolvency Service. Davey cut out the middle man and created the common complaints gateway which sees all complaints funnelled directly to the Service.

Who regulates the regulators?
The changes snowballed this year, with Davey also moving the regulator away from licensing practitioners so it could concentrate regulating the regulators.

One of the biggest criticisms of its role as a licensor was that removing a practitioner’s licence was the only disciplinary action available to it. However, that criticism is not limited to just practitioners. Horne is aware the Service needs more bite than bark when it comes to focusing on the regulators of the profession, of which there are seven.

“As a regulator of regulators we don’t have many tools in our toolkit to be as effective as we would,” he explains. “We are looking at the possibility of taking on more powers to enable us to do our job better.”

Again he says the service is beholden to parliament, awaiting its response as to whether more power would be made available to them.

For now he waits for responses to changes to the Insolvency Act. The changes are expected to come into force in October 2014 at the earliest, with a more likely date of April 2015.

He has high hopes that the changes to insolvency rules, common complaints gateway, red-tape challenge and pre-pack review will leave the Service with a revitalised sense of worth alongside a more modern, fit-for-purpose business rescue powertool for practitioners to have faith in.

 

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