R3 president asks if Insolvency Service can go further

AFTER READING the government’s response to the Select Committee inquiry into the Insolvency Service my initial reaction was positive; I was pleased to see that the government have taken action on a number of areas, including reacting to R3’s (insolvency trade body’s) campaign to promote business rescue and reforming the complaints framework.

However, it is clear that the Insolvency Service must go further and work with the profession on key areas to achieve the goal we all share: to boost the effectiveness of the UK insolvency regime.

One area I am keen to get right is complaints. The insolvency profession does an excellent job in difficult circumstances and as the Select Committee recognised, many complaints about insolvency unsurprisingly stem from concerns about the legal frame-work and financial loss, rather than any wrongdoing by the practitioner.

However, like all industries, there are some bad apples and we are all keen to see that these people are brought to task. For this to be done effectively the complaints regime needs to be robust and easy to navigate.

If we were to start again, I don’t think anyone would choose to have seven or eight different regulators (I’ve lost count), but we have to work with the system that has evolved over the years. The single complaints gateway and common sanctions guidance are important steps, which should simplify what is currently a complex complaints framework.

As president of R3, I want to make sure we do everything possible to ensure that the creditor community have confidence in the industry and I hope that these developments will go some way towards achieving this.

Unsurprisingly, the Select Committee also focused on pre-pack administrations. Pre-packs play a vital role in rescuing businesses and saving jobs, but we must understand that not everyone shares this view and R3 are keen to increase confidence and transparency to ensure that this valuable rescue tool remains a viable option.

The independent review on pre-packs announced by the government may go some way to achieve this, but we must ensure that any policy recommendations that fall out of this are proportionate and do not damage the ability of IPs to rescue business.

So what more can the Insolvency Service do with pre-packs? The SIP 16 report which requires insolvency practitioners to report on why they chose the pre-pack as the best rescue option has resulted in a marked improvement in communication between IPs and creditors. However, this is less effective than it might be, simply because practitioners are not told when they have committed a ‘minor or technical breach.’ As a consequence, they are unable to rectify any areas of non-compliance.

The Select Committee recommends that the Insolvency Service provide feedback to all practitioners who commit ‘minor or technical breaches’, so we were disappointed to see that the government did not address this recommendation, which could significantly boost compliance rates and confidence in the process.

R3 has been talking about poor directors’ disqualification rates for some time now. More than ten years ago 45% of ‘D1 reports’- a brief investigatory report into the director’s role in the collapse of a company – sent to the Insolvency Service by practitioners led to a disqualification of a director.

Today this has dropped to just 21%. The Service said it intends to look at how it prioritises cases, but like the Select Committee, I personally think an increase in resource is what’s needed. Of course, everyone is mindful of the fact that anything which involves additional spending is very difficult for government departments to justify at the moment, but this is an area which the government must get right and quickly!

There are a whole host of issues for the profession at the moment and we clearly have some way to go on areas such as pre-packs and directors’ disqualification, but the Insolvency Service has made some positive steps in the right direction on the back of the Committee’s report. I look forward to working together as an industry to make sure that creditors have confidence in what is a world renowned regime.

Liz Bingham is president of insolvency trade body R3, and partner at Ernst & Young

Related reading