Insolvency practice in the UK is subject to stringent regulation, with practitioners following set standards and a code of ethics.
Overall responsibility for the country’s insolvency policy lies with the Secretary of State for Business Innovation and Skills. On a day to day level, the government agency, the Insolvency Service, via its insolvency practitioner policy section, oversees the insolvency regime on the Secretary of State’s behalf.
The Recognised Professional Bodies and Insolvency Practitioner Regulation
Under the Insolvency Act 1986, the Recognised Professional Bodies authorise their members to act as insolvency practitioners.
Only those who hold membership are entitled to act, whether as liquidators, trustees in bankruptcy, administrators and administrative receivers and supervisors of Company and Individual Voluntary Arrangements.
The Insolvency Service Regulates Recognised Professional Bodies
The Insolvency Service regulates the bodies to make sure that their members are fit to practice.
There are four bodies as follows:
- Institute of Chartered Accountants in England and Wales
- Institute of Chartered Accountants in Ireland (covers Northern Ireland)
- Institute of Chartered Accountants in Scotland
- Insolvency Practitioners Association
While the bodies are independent and can make their own membership rules, there will be similar requirements in terms of qualifications, practical experience and ongoing training. The commitments made by the bodies are laid down in a ‘Memorandum of Understanding’ and this is the agreement between them and the Secretary of State.
Monitors from the Insolvency Service, act as ‘regulator of regulators’ and visit each RPB on a regular basis, typically at least once in three years, to ensure the body is compliant with the Memorandum of Understanding
What Standards Need to be met by Insolvency Practitioners?
The bar is set high for those wanting to become – and work as – an insolvency practitioner. This includes:
· Passing the Joint Insolvency Examination
· Purchasing a ‘bond’ which is a type of insurance in case the practitioner acts dishonestly
· Being subject to monitoring visits at least once every six years or more frequently if considered necessary by the recognised professional bodies and the Insolvency Service. The monitoring is intensive and can involve case reviews and field work checks in addition to meetings.
· Adherence to the Statement of Insolvency Practice and the Insolvency Code of Ethics
What are the Statements of Insolvency Practice?
The statements are issued to licensed insolvency practitioners by their Recognised Professional Body and they exist to maintain high professional standards in their work.
The statements set out basic principles and essential procedures that insolvency practitioners need to comply with. They cover a wide range of topics that are relevant, including for creditors and others impacted by the process, such as on pre-packaged administration and voluntary arrangements.
The standards are commissioned by the Joint Insolvency Committee (JIC), which is made up of representatives from each of the bodies responsible for the authorisation and regulation of insolvency practitioners. They are produced by the Association of Business Recovery Professionals (R3) and are approved by the JIC and then adopted by each of the recognised professional bodies.
The standards are not laws as such, but they sit alongside the legislation to ensure there is consistency and common knowledge among insolvency practitioners. If the insolvency practitioner fails to adhere to the standards, then this could result in disciplinary action.
What is the Role of the Joint Insolvency Committee?
The Joint Insolvency Committee has a key role in developing, improving and maintaining insolvency standards based on a regulatory, ethical and best practice perspective.
It also ensures there is consistency across the profession and acts as a forum for the discussion of current insolvency issues, legislation and standard setting. It also has responsibility for the development and revision of the Insolvency Code of Ethics and the Insolvency Guidance Papers.
The committee includes representatives from each of the four recognised professional bodies, a staff member from each of these, five lay members and each supported by a staff member from the body, five lay members and representatives from the Insolvency Service and the Insolvency Service, Northern Ireland. The committee meets at least four times a year and communication is more frequent via sub-groups.
What are the Insolvency Guidance Papers?
These are issued to insolvency practitioners via the Recognised Professional Bodies on a range of important topics that they should be aware of in the course of their work. The Standards of Practice set out required practice, whereas the guidance papers are, as their name suggests, for consideration and guidance only.
What is the Insolvency Practices Council?
The Insolvency Practices Council is responsible for investigating and examining the ethical and professional standards of the profession. It puts proposals to the recognised professional bodies and also considers whether standards are being correctly adopted, observed and enforced. It is funded by a levy on the bodies, which they in turn charges fees to the insolvency practitioners they licence.
What is the Association of Business Recovery Professionals?
Known as R3, this is the trade association for the insolvency profession. R3 lobbies on behalf of its members to the government and the media. It provides advice to insolvency practitioner members on insolvency law and best practice. It also runs courses, conferences and meetings, allowing members to network and meet their continuing professional development needs. R3 also collates and publishes statistics on corporate recovery and personal insolvency.
What is the Insolvency Code of Ethics?
This is a core document, that was updated in May 2020, and is aimed at all insolvency practitioners and which they are required to follow. The code outlines the fundamental principles which are essential for the profession and these cover:
The need for the practitioner to be honest and clear throughout their length of service on a particular case.
The practitioner is there to support those they work with on an insolvency case, but will remain objective and avoid conflicts of interest.
- Professional competence and due care
To ensure the practitioner is up to date in their training, skills and knowledge.
To ensure all client information is kept confidential and not disclosed unless this is allowed or required.
- Professional behaviour
To adhere to the highest personal and professional standards and complying with laws and regulations.
How are Complaints Made Against an Insolvency Practitioner?
Complaints are made firstly to the practitioner directly and if the matter is not resolved, then the Insolvency Service runs a complaints ‘gateway’ which will be sent to the recognised professional body. Complaints should be made only about something that happened in the last three years.
The Insolvency Service will consider complaints about the recognised professional bodies where necessary will investigate to determine whether they have correctly followed the complaints procedures have been followed correctly – but it does not investigate complaints about individual practitioners. Complaints should relate to matters of professional conduct. Sanctions if the complaint is upheld could include a fine, restriction or withdrawal of the licence to practice. In some cases, an independent review of the complaint may be allowed.