Annual Report 2008

Complaints Handling

In our Annual Report for 2007 we made a number of recommendations on complaints handling in the insolvency profession based on a report produced for us by Professors Mary Seneviratne and Adrian Walters at the Nottingham Law School, Nottingham Trent University.

We also announced that we intended to commission a follow-up piece of research, comparing the complaints handling and disciplinary systems applied by the RPBs to the work of IPs (which in the case of the four accountancy RPBs apply to all the accountants they license) with those applying in the medical and legal professions, chartered surveyors and estate agents and in financial services.

The second Seneviratne and Walters report can be found on the Social Science Research Network website.

Their report identifies three main differences between the arrangements for handling complaints in the comparator professions and those in the RPBs:-

• The comparator professions have separate arrangements for handling complaints from those dealing with disciplinary proceedings; The comparator professions provide an independent external tribunal or Reviewer, who can rehear a complaint de novo and issue a binding decision and who is accessible free of charge to the complainant. Although some of the RPBs have independent Complaints Reviewers/Assessors to whom a complainant may take his/her case, this can only take place when the Investigation Committee has ruled that the complaint does not merit disciplinary proceedings and the Reviewer can only ask the Investigation Committee to look at the case again; and finally
• The comparator professions have empowered their independent complaints examiners to require an apology or to award financial or other redress to a complainant, whose complaint is upheld, even where there is no disciplinary proceeding. The amount of financial redress is usually limited in amount and in some cases limited to compensation for distress or inconvenience. Among the RPBs only ACCA can award compensation (up to a maximum of £5,000), but has not done so in the last five years. The other RPBs’ Disciplinary Committees can require IPs to remit or reduce fees or order them to remedy the particular grievance raised by the complainant, but not to make any other form of financial redress.

We have supplemented the Seneviratne and Walters research by obtaining from the RPBs details of the Alternative Dispute Resolution options which some of them offer to complainants as an alternative to disciplinary action.

We have concluded that, while these ADR options provide a useful alternative to the normal disciplinary procedures and that conciliation is being successfully used in a significant minority of cases, they do not provide an independent external review of complaints equivalent to those offered by the comparator organisations.

This is principally because complainants can only use these alternatives with the consent of the IP or accountant complained against and also because a complainant wishing to use the arbitration or mediation options has to pay significant fees.

Seneviratne and Walters make two suggestions at the end of their report. First, they conclude that “there appears to be a clear case for extending the jurisdiction of the Financial Ombudsman Service (FOS) to all IPs in the provision of debt advice or debt resolution to personal debtors.”

Second, they suggest that “the profession and its regulators may wish to consider whether the wider case for an Insolvency Ombudsman should be the subject of a full, independent review”. They add that any such review should consider whether “the insolvency ombudsman function could be established within the FOS” in order to avoid the proliferation of ombudsmen.

The IPC endorses the first of these conclusions, which is in effect identical with a recommendation we made in our Annual Report last year. We therefore recommend that all personal debtors, who believe that they have been badly advised by an IP, should be able to bring a complaint to the FOS.

The OFT regards debt advice as a “high risk activity” for consumers. Furthermore this requirement already applies to the generality of debt advice companies, including all the volume IVA providers, who need to hold a standard licence from the OFT as well as to all IPs licensed by the IPA and the Insolvency Service. It is only IPs licensed by the accountancy RPBs which are outside the jurisdiction of the FOS.

We suggest that a relatively straightforward way to end this anomaly is for the accountancy RPBs to agree with the OFT that debt advice should no longer be covered by the group licences, which these RPBs currently hold for their IPs.

The RPBs may need to consider whether or not the same solution should apply if some accountant members of the RPBs, who are not IPs, provide debt advice. As regards other types of complaint against IPs, the IPC considers that, with some exceptions, there is a strong case for bringing the complaints and disciplinary procedures relating to IPs more closely into line with those applying in the other professions as described in the Seneviratne and Walters report. In particular, we believe that there should be:-

• A distinct complaints procedure for handling those complaints which fall short of the threshold required for disciplinary action (e.g. isolated cases of inadequate professional service);
• An independent external reviewer of complaints to whom a complainant can appeal if their complaint is rejected at 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.

Many of the complaints against IPs will come from companies or individuals involved as creditors, or in other ways in an insolvency situation, who are not clients of the IP concerned. Such complainants may, through no choice of their own, be dependent on the professional skills and integrity of the IP and, in the absence of other remedies, they should have access to an effective complaints system.

We recognise, however, that recourse to the courts is likely to be the appropriate solution where creditors are seeking to challenge the conduct of an insolvency procedure by an IP acting as a statutory office-holder. We therefore invite the RPBs and the Insolvency Service to consider the case for reform of their current complaints and disciplinary systems to take account of the three bullet points above.

We recognise that the accountancy RPBs may see an awkwardness in amending their general complaints handling systems solely in respect of complaints made against IPs, who are only a small proportion of their membership. It is for this reason, among others, that we have not at this stage taken up the suggestion made by Seneviratne and Walters that there should be a full, independent review of the case for an Insolvency Ombudsman.

However, if the case set out above for amending the RPBs’ complaints systems has merit for IPs, the RPBs may wish to consider whether or not the same changes would also be justified in the case of their accountant members. The Law Societies, which also license IPs, have already reformed their complaints systems along the lines recommended above.

The IPC believes that the changes we would like to see in the handling of complaints against IPs could be equally achieved either by changes to the accountancy RPBs’ general procedures or by agreement to set up specific procedures for IPs. We will look for an opportunity to discuss the report and our recommendations with the Joint Insolvency Committee in the course of the next few months.