An insolvency practitioner has a demanding role, so it is fortunate they are multi skilled professionals, whether in their numeracy and analytical knowledge, their ability to communicate at all levels, in managing what can be difficult and emotive situations and having an in-depth understanding of the law as it applies. What is more, they are also bound by a code of ethics which underpins their work.
A new Insolvency Code of Ethics was introduced on 2 March 2020 and this became operational on 1 May 2020. The code, which is laid out in an 88 page document, was updated following a consultation on suitable revisions and to adopt the drafting format used by the International Ethics Standards Board for Accountants (IESBA). The Accountancy Recognised Professional Bodies, which oversee regulation, use the IESBA approach in their main ethical codes.
Notably, the Insolvency Code of Ethics applies to all insolvency practitioners, irrespective of their authorising body and to all their professional work that relates to an insolvency related appointment. This includes members, students, affiliates, employees of member firms and if applicable, member firms, in all of their professional and business activities, whether remunerated or voluntary.
What has changed with the Insolvency Code of Ethics?
At its heart, the code has not changed extensively, however, there are some new areas. This includes a new section on the insolvency practitioner as an employee. This emphasises that an insolvency practitioner is required to comply with the code, irrespective of their status within a firm.
Meanwhile, the sections on obtaining specialist advice and services, agencies and referrals, referral fees and commission and inducements have been expanded. There is also a new section on responding to non-compliance with laws and regulations based on IESBA material.
What are the Fundamental Principles of the Insolvency Code of Ethics?
There are five fundamental principles of ethics for insolvency practitioners, which are as follows:
Integrity implies fair dealing and truthfulness and so this is about being straightforward and honest in all professional and business relationships.
This means not compromising professional or business judgements because of bias, conflict of interest or the undue influence of others.
- Professional Competence and Due Care
This relates to attaining and maintaining professional knowledge and skill at the level required to ensure that a client or employing organisation receives competent professional service. This should be based on current technical and professional standards and relevant legislation.
This is about respecting the confidentiality of information acquired as a result of professional and business relationships. The practitioner needs to be exceptionally careful with disclosure such as with those at work or elsewhere unless this is required.
- Professional Behaviour
This is about complying with the relevant laws and regulations and avoiding any conduct that the insolvency practitioner knows or should know that might discredit the profession.
What Threats do Insolvency Practitioners Face?
Insolvency practitioners often need to work in a challenging environment and can face a number of threats, including:
- Self-interest Threats
These are where the financial or other interests, such as family relationships, of the practitioner or their practice impacts on their objectivity.
- Self-review Threats
These occur when a previous judgement by an individual in the same practices needs to re-evaluated by an insolvency practitioner.
- Advocacy Threats
This is when an individual in the practice puts forward an opinion or position that could compromise the insolvency practitioner’s objectivity.
- Familiarity Threats
These are seen when an insolvency practitioner becomes too sympathetic or alternatively antagonistic to the interests of others.
- Intimidation Threats
These occur when an insolvency practitioner is put off from acting objectively by threats, whether actual or perceived.
What Support is Available to Insolvency Practitioners?
Having to deal with a range of threats is something insolvency practitioners must be aware of and deal with. They do have support, however, that can assist them. These include the guidance of senior colleagues in terms of providing expert advice, including lawyers if necessary and having clearly defied policies and procedures. These assist insolvency practitioners implement and ensure high standards of quality control are maintained.
Beyond this, the Insolvency Code of Ethics provides directing principles for practitioners when working on cases. While some may be relatively straightforward, some can be extremely complex and could involve having to investigate matters such as possible fraud or where there has been an attempt to mislead. There may be key information that is missing and there could also be conflicting statements from different directors. It is the role of the insolvency practitioner to act with impartiality and professionalism at all times and ensure the code of ethics acts as a constant guide.