The Insolvency Service

IS 11

Written evidence submitted by the Joint Insolvency Committee

The members of the Joint Insolvency Committee represent the bodies that regulate the practice of insolvency in Great Britain: The Association of Chartered Certified Accountants; The Insolvency Service; Insolvency Practitioners Association; The Institute of Chartered Accountants in England and Wales; The Institute of Chartered Accountants in Ireland; The Institute of Chartered Accountants of Scotland; The Law Society of Scotland; Solicitors Regulation Authority.

The Joint Insolvency Committee (JIC) welcomes the opportunity to submit evidence to the select committee. This submission is made on behalf of the Recognised Professional Body (RPB) members of the JIC. Our evidence is restricted to those matters within the scope of the JIC, primarily consistency and standard setting, where the JIC interacts with the Insolvency Service (IS).

Set out at annex A to this submission is a brief history of the JIC and its objectives, putting the interaction between the JIC and IS into context.

The JIC meets four times each year but works through the year and with sub-groups between meetings. Each RPB is represented on the JIC, usually by an insolvency practitioner (IP) supported, where appropriate, by staff from the RPB they represent. The JIC also welcomes a number of observers who play a valuable role in updating JIC on issues from within their remit. Details of the RPBs, other JIC members and observers are detailed at annex B to this response.

The IS attends this meeting in two contexts, the first as a competent authority for the p urpose of authorising IPs, and secondly as the oversight regulator of the RPBs. These roles are fulfilled by two people.

Although, there is a full public consultation involved in the development of all new standards, the JIC believes that inviting lay members to join the committee will further increase transparency and involve other interested parties in JIC’s discussions from the outset. JIC contacted a number of organisations identified by the IS as having a particular interest in insolvency and as a result of that process we are delighted that the Association of British Insurers, HMRC and the Institute of Credit Management have accepted invitations

to join the JIC. At its meeting in November 2011, the JIC welcomed these three new lay members to the committee.

Given the role of the JIC, and the desire of the IS to work with the JIC, it would be helpful if

the IS could share its objectives, policies and agenda such that the JIC can prioritise its

work and better achieve both the goals of the JIC and objectives of the IS. We hope that this

will change now that the Government response to the consultation on reform of the

regulation of IPs has been published.

Pre-pack administrations

The JIC developed a new Statement of Insolvency Practice (SIP) for pre-pack administrations – SIP 16, which was introduced in January 2009. The overriding aim of the SIP was to increase transparency regarding pre-packs and to ensure that creditors were provided with information on a timely basis. The SIP requires the administrator to provide creditors with a detailed explanation and justification of why a pre-packaged sale was undertaken, so that they can be satisfied that the administrator has acted with due regard for their interests (see paragraph 8 of the SIP).

It had always been the JIC’s intention to keep SIP 16 under review and to assess its effectiveness. In 2010, the JIC consulted with users of insolvency proceedings and the profession to establish how SIP 16 was working. The feedback received was that there were few requests from creditors for further information after having seen SIP 16 information, and this feedback would suggest that SIP 16 is achieving its objective.

The JIC has not however progressed its review of SIP 16 as the Government has plans to legislate in this area. A first draft of the proposed statutory instrument was published during the summer of 2011, and members of the JIC and other interested parties made extensive comments and suggestions. It is expected that a revised statutory instrument will be in force by April 2012. It is of concern to the JIC that the profession may not see and be able to comment on the detail of the statutory instrument before it comes into force, as it will have a direct impact on SIP 16. There could be no need for the SIP going forward, but without the opportunity to scrutinise the statutory instrument, or have some further explanation from the IS, the JIC will struggle to have an appropriate standard in place. This will obviously have an impact on the profession (which will have to deal with a period of uncertainty) but in relation to other interested parties, in particular creditors, there will be no opportunity to manage expectations on the level of information they may or may not expect to receive.

Furthermore the JIC has met with the IS and other RPBs to discuss the consistency and adequacy of disclosure around SIP16, and the need for IPs to ensure that the principles outlined in paragraph 8 of the SIP are being followed, as opposed to merely providing data with no explanation. This informal working group concluded with the IS that the approaches of the RPBs in assessing submissions by their members are consistent.

Possible regulation and sanction of licensed insolvency practitioners

IPs are of course already regulated and have been since the introduction of the Insolvency Act, 25 years ago. The JIC is actively looking at common sanctions guidance for its RPBs' committees and tribunals involved in making decisions on complaints, and also common principles for the publication of disciplinary findings. These are important ingredients in the drive towards greater consistency in complaints handling and in transparency of outcomes. At its most recent meeting, JIC was able to agree many of the fundamental points of principle. Further detailed work is now underway with a view to finalising draft common sanctions guidance for the bodies.

Whilst each of the RPBs has a series of sanctions that can be applied to licensed IPs (ranging from an unpublicised caution to removal of an IP’s authorisation to act), the IS as a regulator is disadvantaged in that it only has a single sanction against those IPs that it directly authorises (approximately 5% of the total IP population), which is the removal of authorisation. For that reason alone the decision of the IS to stop being a direct regulator of IPs is welcomed. The other RPBs can then ensure that there is transparency, consistency and appropriate sanctions that the IS can review as oversight regulator.

Strengthening of the control of IP’s remuneration

The JIC’s primary interest in remuneration is through SIP 9, which deals with payments to insolvency office holders and their associates. This SIP reflects the enhanced creditor rights introduced by the Insolvency Rules 2010, and also reinforces the need for information to be provided that is comprehensible and transparent. This an area which shows SIPs at their most effective. The law will never be able to reflect fully the nature of the relationship between the insolvency profession and the users of insolvency processes – standards enable us to build a framework that goes beyond time scales and bald facts, and requires IPs to provide information that explains why they are seeking payment of a particular sum.

The IS played an active part within the working group in developing the recent revisions to SIP9. SIP9 (England and Wales) came into force on 1 November 2011 and SIP9 (Scotland) is close to being issued.

The SIP needs to be placed into context with insolvency legislation that guides and determines the remuneration that an IP can seek. However, each of the RPBs (and indeed individual IPs) recognise that active participation of all creditors (both secured, preferential and unsecured) in the setting of insolvency fees is to be encouraged. This need for inclusion of all creditors has been made to the IS, and should be part of the general education of the wider stakeholder community – a role that falls to the IS. Discussions at the JIC have often centred around the lack of participation to date by government bodies (such as HRMC and the Redundancy Payments Service) in many cases.

The JIC believes that existing mechanisms within insolvency legislation for creditors to approve and review IPs’ fees, when linked together with SIP9, are adequate and enable creditors both to influence, and ultimately approve or reject, fees in an appropriate manner, particularly given the enhanced rights for creditors introduced in the 2010 Rule changes (the full impact of which has yet to be assessed). However, as part of our ongoing review of the adequacy of existing systems and in response to the latest Government announcements, we will be giving further consideration to the extent to which complaints about the remuneration of IPs can be accommodated within the RPBs’ complaints systems.

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

The JIC operates as a standard setting body without any formal budget and relies on the members of the JIC to fund the expenses of their representatives and the costs of hosting meetings. The working groups which review SIPs are made up entirely of volunteers. Secretariat services, including the consultation processes for new standards, are provided to the JIC without charge.

The JIC’s engagement with the IS is primarily with staff within the policy functions of the IS, rather than with the Official Receivers’ operational staff. We may not be seeing first-hand the effects of reductions in budgets and staff, but we are conscious that those staff we primarily deal with are funded by a levy paid by every insolvency practitioner. The insolvency profession is diverse, ranging from sole practitioners to multi partner global operations, and the IS should not assume that the profession can bear increasing levy costs.

Tracy Stanhope

Secretary to the Joint Insolvency Committee

5 January 2012

Annex A

About the JIC

The JIC was formed in 1999 and provides a forum for discussion and promotes

consistency of approach across bodies which authorise insolvency practitioners in

Great Britain. Its mission statement is to:

- Consider, maintain, improve, develop and promote insolvency standards

and guidance of a regulatory, ethical, or best practice nature by means of

debate and agreement within the Committee.

- Discuss any such matters with any other appropriate bodies.

- Facilitate discussion between authorising bodies in order to ensure

that, as far as possible, insolvency practitioners are dealt with

uniformly by such authorising bodies.

The JIC has 3 primary regulatory tools by which it can fulfil its mission statement – the insolvency code of ethics, statements of insolvency practice, and insolvency guidance papers.

Statements of Insolvency Practice (SIPs) are a series of guidance notes issued to licensed insolvency practitioners with a view to maintaining standards by setting out required practice and harmonising practitioners’ approach to particular aspects of insolvency. All insolvency practitioners are therefore working to common standards.

SIPs are issued under procedures agreed between the insolvency regulatory authorities acting through the JIC. Where appropriate, when changes are made to SIPs affecting England and Wales, equivalent changes are made to those affecting Scotland and Northern Ireland.

The purpose of SIPs is to set out basic principles and essential procedures with which insolvency practitioners are required to comply. Departure from the standards set out in the SIPs is a matter that may be considered by a practitioner’s regulatory authority for the purposes of possible disciplinary or regulatory action.

Insolvency Guidance Papers (IGPs) are issued to insolvency practitioners to provide guidance on matters that may require consideration in the conduct of insolvency work or in an insolvency practitioner’s practice. Unlike Statements of Insolvency Practice, which set out required practice, IGPs are purely guidance and practitioners may develop different approaches to the areas covered by the IGPs.

Annex B

MEMBERS OF THE JIC

The Association of Chartered Certified Accountants

Insolvency Practitioners Association

The Institute of Chartered Accountants in England & Wales

Chartered Accountants Regulatory Board

(Chartered Accountants Ireland)

The Institute of Chartered Accountants of Scotland

The Law Society of Scotland

Solicitors Regulation Authority

The Insolvency Service

Association of British Insurers

Institute of Credit Management

HMRC

OBSERVERS OF JIC

Representatives of The monitors of the authorising bodies

R3

The Accountant in Bankruptcy

The IS Northern Ireland

Law Society Northern Ireland