The Insolvency Service

IS 04

Written evidence submitted by the Institute of Credit Management

The Institute of Credit Management is the largest professional credit management organisation in Europe. Its members hold important, credit-related appointments throughout industry and commerce, and are key stakeholders in every form of insolvency as creditors, often unsecured. We therefore feel it appropriate to submit evidence to the inquiry.

Pre-pack administrations

The institute has engaged actively with the Insolvency Service in the recent consultation relating to pre-pack sales and the introduction of a notice period. We recognise the conflicting views and interests involved but believe the opportunity for creditors, who may have detailed and local knowledge, to provide information to the insolvency practitioner is vital. We believe the intention to allow the notice to be waived, with the Court’s permission to be sensible and would only urge that adequate consultation takes place before the detailed changes are implemented to avoid the risk of unintended consequences.

We recognise the value of pre-pack sales in rescuing businesses and maintaining employment and believe, in the right circumstances, they are appropriate and useful. We are however concerned when the process is simply used as a vehicle to allow the rise of a phoenix company that has absolved itself of debts and continues to trade as if it were the former business to the detriment of unpaid creditors. Indeed, on occasions, the knock-on effect of such an administration can be the failure of other businesses.

Possible regulation and sanction of licensed insolvency practitioners

We would point out that licensed insolvency practitioners have always been regulated by their RPBs and sanctions already exist. The Joint Insolvency Committee, on which the Institute of Credit Management now sits as a lay member, has been working towards common sanctions guidance and progress is well underway.

We also believe the work towards a strengthened and simplified complaints process, highlighted by Ed Davey in his December 2011 statement, will be of benefit in creating an environment in which complaints are seen as being treated more consistently and seriously.

Creation of an Insolvency Ombudsman

The Insolvency Service should be the regulator of regulators, and the decision to remove the Secretary of State from the direct authorisation of insolvency practitioners is helpful. The proposal for a strengthened and simplified process for handling complaints (mentioned above) is welcomed by the Institute and the creation of an Ombudsman would, in our view, add little value and be likely to add a further layer of bureaucracy that we could not support.

Strengthening of the control of IP’s remuneration

We believe the complaints proposal, the remit of which would include excessive fee charging will enhance control, as will measures to encourage the engagement of creditors through, for example, Creditor Committees. Anything that encourages transparency is to be encouraged but not if it adds significantly to costs and we would suggest that the revised complaints regime should be introduced and tested prior to further steps. We would also suggest that the impact of the changes to the Insolvency Rules introduced in 2010 need to be fully established, and their impact assessed, before further action is instigated.

The effects of the reductions in the Service’s staff and budget

We would be greatly concerned if the reductions in budget resulted in a degradation or reduction of Disqualification Unit activity. We believe any such dilution of activity would send entirely the wrong message to delinquent directors at a time when corporate insolvencies are likely to increase.

There are occasions where the return to creditors in an insolvency in which funds are available is reduced because of the need to fund non-asset insolvencies and this inequity should be considered alongside the broader funding issues.

We hope our comments are helpful and would be happy to engage further.

Glen Bullivant

Chair of Technical Committee

Institute of Credit Management

22 December 2011