The Insolvency Service - Business and Enterprise Committee Contents


2  The Insolvency Service

3. The Insolvency Service is an executive agency of BERR which employs around 3,000 people and has an annual turnover of approximately £200 million, primarily funded by fees for its services. It describes its core functions as to:

administer and investigate the affairs of bankrupts, of companies and partnerships wound up by the court, and establish why they became insolvent;

act as trustee/liquidator where no private sector insolvency practitioner is appointed;

act as nominee and supervisor in fast-track individual voluntary arrangements;

take forward reports of bankrupts' and directors' misconduct; 

deal with the disqualification of unfit directors in all corporate failures; 

deal with bankruptcy restrictions orders and undertakings;

authorise and regulate the insolvency profession; 

assess and pay statutory entitlement to redundancy payments when an employer cannot or will not pay its employees; 

provide banking and investment services for bankruptcy and liquidation estate funds; 

advise BERR ministers and other government departments and agencies on insolvency, redundancy and related issues;

provide information to the public on insolvency and redundancy matters via our website, leaflets, Insolvency Enquiry Line and Redundancy Payments Helpline; and 

conduct confidential fact-finding investigations into companies where it is in the public interest to do so. These enquiries are carried out by Companies Investigation Branch.  

4. An individual who is insolvent can be made bankrupt either on their own petition or on the petition of a creditor. The individual will then ordinarily be discharged from bankruptcy, and clear of their debts, after a period of one year. As an alternative to bankruptcy, a debtor can enter an individual voluntary arrangement (IVA), which in broad terms releases the individual from their debts provided its terms are approved by a specified majority of creditors and then implemented. This routinely involves the individual making a fixed number of payments from their income. Debt Relief Orders will also be available from April 2009 for individuals with few assets, a low income and unsecured debts of less than £15,000. This will give the Official Receiver, who is employed by the Insolvency Service, a new power to sanction a debt relief scheme without the need for creditor or court approval.

5. A company struggling to pay its debts may be able to enter administration. Where this happens control over the company passes from its directors to an insolvency practitioner, known as an administrator. The administrator must act according to the statutory purposes set out in the Insolvency Act 1986 including, where possible, to rescue the company as a going concern. Alternatively a company can enter a company voluntary arrangement (CVA) or a scheme of arrangement, which are also aimed at achieving a rescue. Where this is not possible or appropriate, a company can enter liquidation (either voluntarily or compulsorily by court order) during which its assets will be realised and the net proceeds (if any) distributed to its creditors. The company will then be dissolved.

6. The UK was recently rated as joint eighth out of 155 countries for the speed with which it deals with troubled businesses and ninth out of 155 countries for the amount recovered for creditors.[2] The Service is justifiably proud of this achievement. It continues to press for changes to the insolvency regime in England and Wales. This includes a long planned reform of the insolvency rules and two Legislative Reform Orders addressing matters such as the advertising regime applicable to certain types of liquidation and the removal of unnecessary requirements to report to court.

7. We have received positive feedback about the overall performance of the Insolvency Service. For instance, the Institute of Chartered Accountants stated that it generally "carries out its functions efficiently and with expertise and professionalism."[3] The Insolvency Practitioners Association noted that it has effectively managed fluctuating levels of insolvency cases in recent years, while the body that represents the majority of insolvency practitioners, R3, formally known as the Association of Business Recovery Professionals, stated: "the Insolvency Service provides a valuable service to the UK. The professionalism and commitment of the staff and its management in discharging their obligations should be recognised."[4]

8. The Insolvency Service achieved nearly all of the targets set by the Secretary of State for 2007-08 (see below).[5] A notable exception concerned the failure to increase the number of successful enforcement proceedings relating to misconduct by directors and others. This followed cuts to the funding provided by BERR to the Service in the previous year, 2006-07.[6] We return to this issue, below.

2007-08 Published Targets Achieved
Maintain satisfaction levels of bankrupts and directors at 91% 92.1%
Increase satisfaction level of insolvent creditors to 84% 80.3%
Increase the level of public confidence in The Service's enforcement regime to 65% 65.3%
Reduce the average time from insolvency order to the instigation of disqualification proceedings in appropriate cases to 22 months 18.5 months
Increase the quantity of enforcement outputs in 2007-08 from 2006-07 baseline of 7% 0.1%
Complete consideration of 90% of vetting complaints cases within 2 months 92.6%
Complete 90% of internal section 447 investigations within 6 months 95.7%
Action redundancy payment claims

78% within 3 weeks

92% within 6 weeks


78.7%

93.7

Maintain the cost of redundancy payment processing at the 2006-07 baseline 96.6% of 2006-07 costs
Increase the satisfaction levels of redundant employees to 78% 75.2%

Source: The Insolvency Service Annual Report and Accounts 2007-08, Table 1, p7

9. The recession may have a significant impact on the work of the Insolvency Service. For instance, the Service's Corporate Plan for 2008-11 accepts that uncertainties about the volume of insolvencies poses a "big challenge" and that maintaining current levels of performance will be difficult.[7] In particular, the Service has recently had to increase its estimate of the cases that it expects to administer this year by an additional 5.5%, while the number of redundancy payments that it will be required to process is expected to more than double compared to last year.[8] The demand for investigations into misconduct by directors and others is also expected to rise.[9]

10. While the Service considers that it is well placed to handle these challenges, a number of discrete concerns have been raised in relation to the insolvency regime. These include widespread fears about the abuse of pre-pack administrations, misgivings about the Insolvency Service's powers and role as regulator of the insolvency profession, and ongoing doubts about its funding arrangements, particularly in relation to its investigation and enforcement activities.

11. We commend the Insolvency Service and its staff for the generally effective and efficient way in which its functions are discharged. We urge, however, a redoubling of efforts to ensure that high levels of service are maintained throughout the economic downturn. This must include action to address concerns about the insolvency regime that have been raised during this inquiry.


2   The World Bank, Doing Business Report 2009, available at http://www.doingbusiness.org/  Back

3   Ev 46, para 6 (The Institute of Chartered Accountants in England and Wales) Back

4   Ev 36, para 1 (Insolvency Practioners Association); Ev 27, summary (Association of Business Recovery Professionals) Back

5   Annual Report 2007-08, 28 July 2008, page 7, available at http://www.official-documents.gov.uk/document/hc0708/hc08/0800/0800.asp  Back

6   Ev 21, para 38 (The Insolvency Service) Back

7   The Insolvency Service, Corporate Plan 2008-11, pp3 to 4, available at http://www.insolvency.gov.uk/aboutus/CorporatePlan.pdf Back

8   Q31 (Mr Speed); Q41 (Mr Horne) Back

9   Ev 17, para 9 (The Insolvency Service) Back


 
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