Regulation of Insolvency Practitioners and the handling of complaints

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1 Regulation of Insolvency Practitioners and the handling of complaints Standard Note: SN/HA/5531 Last updated: 1 June 2010 Author: Section Lorraine Conway, Home Affairs Section Home Affairs Section In the United Kingdom, only a licensed insolvency practitioner may be appointed in relation to formal insolvency procedures for individuals and businesses. This means that a person who acts as a liquidator, administrative receiver or administrator (in respect of company insolvencies) or as a trustee in bankruptcy (in respect of personal insolvencies) must be authorised to act as an insolvency practitioner. In addition, only a licensed insolvency practitioner can advise on formal procedures in respect of all Company Voluntary Arrangements (CVAs) and Individual Voluntary Arrangements (IVAs). Insolvency is a regulated profession under the Insolvency Act 1986, the Insolvency Rules 1986, and the Enterprise Act This means that all qualified Insolvency Practitioners must be licensed and regulated by a recognised professional body. In carrying out their duties, insolvency practitioners must comply with statutory requirements and also follow best practice guidance and ethical guidance. The recognised professional bodies are required to have proper procedures in place to ensure that complaints made by members of the public against those insolvency practitioners it authorises are properly investigated. Alternatively, if a member of the public has a complaint about a particular insolvency practitioner authorised directly by the Secretary of State, their complaint will be investigated by the Insolvency Service acting on behalf of the Secretary of State. The purpose of this note is to provide an outline of the current regulation of insolvency practitioners. It also provides information on how a complaint can be made against an authorised insolvency practitioner. It should be noted that insolvency legislation is devolved in Northern Ireland, although the regulatory regime follows very closely that which applies in England, Wales and Scotland. This information is provided to Members of Parliament in support of their parliamentary duties and is not intended to address the specific circumstances of any particular individual. It should not be relied upon as being up to date; the law or policies may have changed since it was last updated; and it should not be relied upon as legal or professional advice or as a substitute for it. A suitably qualified professional should be consulted if specific advice or information is required. This information is provided subject to our general terms and conditions which are available online or may be provided on request in hard copy. Authors are available to discuss the content of this briefing with Members and their staff, but not with the general public.

2 Contents 1 Structure of the regulatory regime The Insolvency Service and Recognised Professional Bodies The Memorandum of Understanding The Ethical Code, Statements of Insolvency Practice Summation 4 2 Sanctions that can be taken against insolvency practitioners 4 3 Complaints against insolvency practitioners 5 1 Structure of the regulatory regime 1.1 The Insolvency Service and Recognised Professional Bodies The Insolvency Act 1986 (IA 1986) and the Insolvency Rules 1986 introduced the current authorisation and regulatory regime for insolvency practitioners in Great Britain. Under the IA 1986, only those individuals authorised to act as an insolvency practitioner may hold the following personal or corporate insolvency appointments: In relation to personal insolvency (i.e. the individual): Nominee or supervisor of a Voluntary Arrangement Interim Receiver Interim or permanent Trustee in Sequestration (Scotland only) Trustee in Bankruptcy Trustee under a Deed of Arrangement Trustee of a Trust Deed for Creditors Trustee of the insolvent Estate of a deceased individual In relation to corporate insolvencies (i.e. companies): Nominee or Supervisor of a Voluntary Arrangement Administrator Administrative Receiver Provisional Liquidator Liquidator Under section 392 of the IA 1986, the Secretary of State is able to directly authorise insolvency practitioners. In practice, the Insolvency Service, which is an executive agency of the Department for Business, Innovation and Skills (BIS), exercises these functions for the Secretary of State. The Secretary of State is also empowered under section 391 of the IA 1986 to recognise professional bodies as being able to authorise insolvency practitioners. The primary task of theses recognised bodies is to ensure that members who are permitted to act as insolvency practitioners are fit and proper, and meet acceptable requirements as to education, practical training and experience. The bodies currently recognised by the Insolvency Practitioners (Recognised Professional Bodies) Order 1986 are: 2

3 The Institute of Chartered Accountants in England & Wales (ICAEW) The Insolvency Practitioners Association (IPA) The Law Society of England and Wales (LS) The Institute of Chartered Accountants of Scotland (ICAS) The Association of Chartered Certified Accountants (ACCA) The Institute of Chartered Accountants in Ireland (ICAI) The Law Society of Scotland (LSS) All of the seven bodies have been recognised since 1986 and are collectively referred to as the Recognised Professional Bodies (RPBs). All insolvency practitioners are required to disclose details of their authorising body on their correspondence. Alternatively, a searchable database of all authorised insolvency practitioners is available in the 'Find an Insolvency Practitioner' database on this site. It should be clear that the Insolvency Service has two distinct roles in relation to the regulation of insolvency practitioners: 1. To authorise and regulate applicants who apply directly to the Secretary of State for authorisation to act as an insolvency practitioner; and 2. To monitor the regulatory activities of the RPBs to ensure that they are undertaken in accordance with common standards (as set out in a Memorandum of Understanding agreed with the Secretary of State). It is worth noting here that the Insolvency Service also supervises the development of regulatory policy and professional standards, monitors the effectiveness of the relevant legislation and provides guidance to the insolvency profession on law and practice. Since , the Insolvency Service has put its authorisation function at arm s length from its overarching regulatory function. 1.2 The Memorandum of Understanding To ensure consistency in regulation between the seven RPBs, a Memorandum of Understanding has been agreed between the RPBs and the Secretary of State. This Memorandum sets out guiding principles in a number of important areas, including: the granting of authorisations; ethics and professional standards; handling of complaints; retention of records; and the disclosure of regulatory information to other RPBs and the Secretary of State In addition a sub-set of Principles for Monitoring Insolvency Practitioners has been agreed with the RPBs. It is the responsibility of the Insolvency Service to monitor the RPBs for adherence to both the Memorandum and to the Principles. 1.3 The Ethical Code, Statements of Insolvency Practice All insolvency practitioners are bound by an Ethical Code, Statements of Insolvency Practice agreed by all the RPBs. This means that all insolvency practitioners are required to follow a standardised code, regardless of their authorising body. The purpose of the Code6 is to provide the clear guidance necessary to ensure high professional and ethical standards by insolvency practitioners. The current insolvency ethical code came into force on 1st January 2009 and can be viewed at: 3

4 It should also be noted that in 2000 an Insolvency Practices Council (IPC) was set up as an independent external body with a remit to investigate and examine the ethical and professional standards of the insolvency profession and make recommendations to the bodies that regulate the profession for any changes in regulation it considers are needed in the public interest. It also considers whether standards are being adopted, observed and enforced. All seven RPBs are required to cooperate with the IPC. 1.4 Summation To sum-up this section, the regulatory structure under the IA 1986 can be described as follows: the Secretary of State is the ultimate source of regulatory authorisation (i.e. the Secretary of State has the power to authorise practitioners directly or to delegate that power to professional bodies); the Insolvency Service (an executive agency of the Department of BIS) monitors those practitioners who are authorised directly by the Secretary of State; the Insolvency Service is the body responsible for administering the powers of the Secretary of State to recognise the professional bodies; the Insolvency Service is also the regulator of the RPBs; and the RPBs are responsible (on terms agreed in Memorandums of Understanding with the Insolvency Service) for the education, monitoring and discipline of those members who practice as insolvency practitioners (i.e. the day-to-day regulation of insolvency practitioners is carried out by the RPBs) 2 Sanctions that can be taken against insolvency practitioners Since 1994, all insolvency practitioners are subject to a formal programme of monitoring visits by their authorising body (i.e. one of the seven RPBs). These visits are designed to assess whether a practitioner is fit and proper and to promote compliance with statutory obligations and best practice. Where failures in compliance are identified, the RPBs have a range of regulatory and disciplinary sanctions that they are able to take against their authorised insolvency practitioners. These include: undertakings to amend practices restrictions (including limiting the number or type of appointments) imposing bans on accepting new appointments fines (including circumstances where the member has consented to the fine) with or without orders for payment of costs requiring an insolvency practitioner to make improvements to their practice withdrawing authorisation ( this, of course, is the ultimate sanction since it will prevent the individual from acting as an insolvency practitioner in any capacity) Where the Secretary of State has directly authorised an individual to act as an insolvency practitioner, the Secretary of State may also withdraw authorisation. 4

5 3 Complaints against insolvency practitioners As outline above, in carrying out their duties, insolvency practitioners must comply with several statutory requirements under the IA 1986 (as amended), the Insolvency Rules 1986 and the Enterprise Act 2002 [EA 2002]. They must also follow best practice guidance and ethical guidance. Each of the seven RPBs is required to have proper procedures in place to ensure that complaints made by members of the public against those insolvency practitioners it authorises are investigated. If a member of the public is of the opinion that an insolvency practitioner is acting unprofessionally, improperly or unethically, they can make a complaint to the appropriate RPB. The Insolvency Service suggests that before making a complaint about a particular insolvency practitioner to the relevant RPB, the matter should first be raised directly with the insolvency practitioner. Only if the matter cannot be resolved should a written complaint be made to the relevant regulatory authority. Each RPB will have its own complaints procedure and will explain how to make a complaint. However, as a general rule, an authorising body will not consider complaints about the amount of a practitioner s remuneration (providing it has been properly approved in accordance with the law and relevant Statements of Insolvency Practice) as that is a matter for creditors and ultimately the court. It should also be noted that the Insolvency Service has no power to review a professional body s decision nor can the Service substitute its judgement for that of the professional body in relation to individual complaints. If a member of the public has a complaint about an insolvency practitioner authorised directly by the Secretary of State, they should write to: Insolvency Practitioner Unit The Insolvency Service 4th Floor Cannon House 18 Priory Queensway Birmingham, B4 6BS IPU. @insolvency.gsi.gov.uk The aim of the Insolvency Service is to reply on behalf of the Secretary of State within 15 working days of receipt of the complaint, setting out how it proposes to deal with the matter. Thereafter, the Insolvency Service will seek information from the relevant Insolvency practitioner. As soon as possible the Insolvency Service will write to the complainant setting out the insolvency practitioner's explanation and its own comments on the complaint. However, the Insolvency Service has no power to impose any disciplinary sanction or penalty against an insolvency practitioner, nor can it order the practitioner to pay compensation if a complaint is upheld. However, the Insolvency Service will encourage the insolvency practitioner to resolve the complaint where possible. Where appropriate, the Insolvency Service will also work with insolvency practitioners to alter their procedures and practices. Importantly, if the complaint is found to be justified, the Secretary of State will take it into account when an insolvency practitioner seeks re-authorisation. Further information can also be found in an Insolvency Service publication, How to make a complaint against an insolvency practitioner, available at: 5