Insurance companies will be able to go into administration or voluntarily liquidation for the first time next year, under legislation that a joint Lords and Commons committee is expected to back later today.
Legislators will complete their consideration of clauses in the Financial Services and Markets Bill and are likely to support the extension of the same insolvency procedures that apply to other business sectors to insurers.
Another proposed change in legislation that will allow the Financial Services Authority to petition the court for the bankruptcy of sole traders is also expected to win government support.
Insolvency practitioners have welcomed the moves, which they say are long overdue. PricewaterhouseCoopers insurance insolvency partner Philip Singer said: ‘Nobody has ever been able to come up with a sensible reason as to why there is a statutory prohibition on putting insurance companies into administration. As practitioners, we have had to jump through hoops to work around it.’
Singer said the law as it stood had added additional costs to the procedure, which meant spending more shareholders’ money in the long run.
Others greeted the government’s consent for changes allowing insurance companies to be voluntarily wound up as a recognition of the growing professionalism of insolvency practitioners.
A Big Five source said the prohibition was likely to have been put in place originally because of the fear of people losing their savings. But this perception had changed as the profession had proved itself, he added.
He agreed that the changes would also save money, given that the fees charged on a compulsory liquidation are higher than those charged when the liquidation is voluntary.
Wilde Sapte partner Mark Andrews said: ‘This is very sensible. It will ensure that there are now a range of insolvency remedies available, while the provision that companies will have to obtain the FSA’s consent prior to winding up will provide protection against misuse.’
Practitioners were also supportive of the Treasury’s move to allow the FSA supervision over sole practitioners, saying that it filled a gap in the current legislation.
Andrews said the proposed changes would allow the FSA to become more involved in the insolvency procedure, which would ensure discussion with the regulator at the outset and avoid potential difficulties arising later.
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