Annual Report 2008

Executive Summary

This report makes recommendations to Insolvency Practitioners (IPs) and their regulators (the Recognised Professional Bodies which license them) and, where appropriate, to the Insolvency Service and other government agencies, on personal indebtedness, on pre-packaged administrations and on complaints handling.

Personal Indebtedness: Individual Voluntary Arrangements and Debt Management Plans
The IPC recommends that:

• The Insolvency Service and the insolvency regulators should monitor the IVA market to determine whether debtors, who can only make monthly repayments of less than £200, are being unreasonably refused IVAs. If this is confirmed, the Government should put pressure on creditors to allow such IVAs to be approved, if necessary by adopting more flexible fee structures;
• The Insolvency Service should take the earliest legislative opportunity to reintroduce the substance of their proposals for Simplified IVAs;
• The Insolvency Service should publish regular aggregate statistics on the failure rates of IVAs, starting this year. It should provide the RPBs with regular IVA failure statistics for each licensed IP to help them focus their monitoring. The Insolvency Service should also carry out further survey research into the reasons for IVAs failing;
• The Insolvency Service and the OFT should work through the IVA Standing Committee to obtain commitments from debt-advice organisations and the creditors or their agents to produce meaningful aggregate statistics on the average duration and success/failure rates of Debt Management Plans (DMPs) to enable debt advisers and debtors to make more informed decisions; and
• The Government should, with the help of the FSA and the Financial Reporting Council, investigate whether, as is widely believed in the debt advice sector, there are differences in the accounting and solvency rules or in their application, which allow creditors to reduce the extent to which they write down impaired debts covered by DMPs compared with IVAs and bankruptcy.

Corporate Insolvencies: Pre-packs in Administrations
We recommend that:

• In monitoring the reports on pre-packs in administrations, which IPs are now required to provide to creditors under the Statement of Insolvency Practice (SIP 16), both the insolvency regulators and the Insolvency Service should check that the administrators have taken all reasonable steps to market the business or to approach other possible buyers;
• The Insolvency Service and the insolvency regulators should also monitor compliance with the requirement in the new Ethical Code that IPs, who have previously advised the directors of a company prior to its entering administration, should not accept an appointment as the administrator when there is a material risk that they may be seen as lacking the necessary objectivity and independence to serve the interests of all the creditors; and
• Any review of the conduct of directors following a pre-pack should consider whether either fraudulent or wrongful trading has taken place. Appropriate action should then be taken by IPs and the Insolvency Service where either is found to have occurred.

The Company Directors’ Disqualification Act 1996
Though we make no specific recommendation on this topic, we draw attention to the fact that the number of reports made by IPs on the conduct of the directors of insolvent companies is likely to increase significantly during the recession.

We believe it is crucial that sufficient government funding is provided to the Insolvency Service to enable it to carry out the increased number of investigations it will need to make in cases where the IP’s report provides sufficient grounds for pursuing a possible case for disqualification.

Complaints Handling
In the light of a second research project by the Nottingham Law School for the IPC, which compares the complaints and disciplinary procedures of the insolvency regulators with those of other professions, we recommend that:-

• All personal debtors who believe that they have been given bad advice by an IP are able to bring their complaint to the Financial Ombudsman Service. This would bring IPs into line with other debt advisers.

As regards other complaints against IPs, we believe that there should be:-

• A distinct complaints procedure for handling those complaints which fall short of the threshold required for disciplinary action, eg, isolated cases of inadequate professional service;
• An independent external reviewer of complaints to whom a complainant can appeal if their complaint is rejected in the first instance; and
• The independent reviewer should be able to award appropriate redress to complainants whose complaint is upheld. In many cases an apology will be sufficient, but in a minority of cases a consolatory monetary award for distress or inconvenience suffered may be justified.