It was an odd start to my week after almost 18-months of uncertainty, and people having commenced the gradual return to the office: an article in the Times branding all insolvency practitioners (IPs) with whom I work on a daily basis as bandits of the wild west. If the article is to be believed, IPs are all out there casing the banks and railroads looking for their next big score, i.e. their next insolvency appointment. This was something that was, quite frankly, news to me.
In case you missed it, the article in the Times (published on 14 September 2021 at 12:01AM) was about the All-Parties Parliamentary Group’s report into the insolvency profession – predominantly targeting insolvency practitioners, rather than their legal advisors and agents, although it is arguable that we are all tarred with the same brush. It suggested that the profession works in similar ways to the “Wild West” after evidence of “alleged widespread misconduct including intimidation, deception and misappropriation of assets” had been uncovered.
For those keen to read the APPG’s findings, their report can be found here.
The Times article can be found here.
My opinion, whether the APPG care for it or not, is that IPs most certainly aren’t the cowboys (and girls) that the APPG seem to be trying to portray them as (although there is no arguing that there will be the occasional problem IP and/or firm out there who give the rest a bad name).
I entered the insolvency profession in February 2019 after spending the majority of my first year in qualified practice as a debt recovery solicitor. After making the move to Paris Smith, I was introduced to a hub of insolvency professionals based in and around the Southampton area (and further afield). It’s been a learning curve (and still is) but in the past two and a half years, I have never once had to question the integrity of any of our IP contacts and clients. The legal profession, for those in and amongst it, will know that we are one of the most heavily regulated professions, with the (arguably, in some cases, a little extreme) sanctions for our profession’s misconduct being regularly shared with us via the Law Society Gazette. Apart from perhaps those under the umbrella of the FCA, I would say that Insolvency Practitioners are in the same boat as Solicitors as one of the most scrutinised and regulated professions in the UK, if not the globe.
Reviewing the APPG’s report, it is clear that someone’s feathers have been ruffled, as whilst they commend the “many IPs [who] act professionally and ethically”, they have decided to focus purely on a few rotten apples, and a very narrow range of insolvency scenarios confined to administrations involving secured creditors, rather than those the vast majority of IPs and the much more common insolvency procedures.
They go on to take issue with IPs who would decline to act against any party they may be connected with (as any self-respecting professional should, for fear of conflicts of interest arising), and IPs who do not take action against specific parties in circumstances where a possible cause of action has been identified. Contrary to the APPG’s finding, I have witnessed, first-hand, the detailed and lengthy steps that IPs take to ensure no conflicts of interest arise before agreeing to take a formal appointment.
That said, one suggestion by the APPG is a conflict of interests ban, which proposes a 2-year ban on IPs acting as an appointment taker for that company if they were involved in any pre-appointment work. I believe this would likely lock out the majority of well-intentioned IPs who often provide this initial advice cheaply, if not for free, as it would likely stop them from continuing to do so for fear of no fee being available upon appointment and will surely result in significant duplication between the pre-appointment advice and the IP appointed to take over.
For a number of directors in distress, it is this initial advice which can be a turning point for the business and those directors may otherwise have nowhere else to seek help. The turnaround opportunities can often start here if there is something that may be saved. It’s as if the APPG has not had a significant amount of real-world experience here, and are simply raising concerns based on a rather skewed perspective from a handful of worst case scenarios out of the thousands of corporate insolvencies which take place every year.
The irony of the report is that it notes the “difficulty of raising the litigation finance and insurance needed to start a claim against an IP through the court system…” in respect of those who may have claims brought against them for misconduct. However, it is for these exact reasons that some IPs find themselves in a difficult situation where valid claims against third-parties may be present in an insolvent company, but for financial reasons – for the IP, their lawyers and/or agents – the claims cannot take off. This isn’t the fault of the IP, but a lack of general governmental support to help these IPs in utilising their statutory powers for the benefit of all creditors. It’s all well and good the APPG criticising some instances where action has not been taken, but the rhetorical question must surely be: would you do it for free? Most of us would not go to work if it did not result in financial remuneration, so why should IPs? If it is the case that the APPG expects all avenues to be explored, then financial and practical support should be available to IPs to allow them to perform their duties without any such restrictions.
I’m conscious that this post, thus far, appears to entirely bash the APPG’s position but I will admit there are some slivers of good sense within. One of these, which I must say I advocate, is moving IPs under the umbrella of a single regulator which holds all of its members to the same level of professionalism. It works for a number of other professions, so I cannot see why it would not for IPs, provided that the regulator is truly independent i.e. not the Insolvency Service.
My own dealings with one of the two main IP regulators (the IPA and ICAEW, although I shall not name which) have only ever been met with ongoing, significant delays and a general misunderstanding throughout the complaints process which may have been somewhat reduced had there been a uniform framework in place, with an ombudsman to refer to if the expected standard was not upheld. So, the APPG’s suggestions aren’t all misplaced, but rather than simply pointing the finger they could in my view have done more to support public confidence in the better parts of the existing framework.
I am sure that the APPG means well, but I – and my professional colleagues both within and outside of Paris Smith – am very much aware that this is not the first time that a swipe has been taken at IPs and their profession.
R3 – the Association of Business Recovery Professionals – was quick to acknowledge the report and note that the APPG has “often been critical of the profession and as such the report’s recommendations have not come as a surprise”, and goes on to say that “the report shows a lack of understanding of the framework, the difficult circumstances in which the insolvency profession works, and the critical role it plays in rescuing business, preserving jobs and creating the confidence to trade and lend by returning money fairly to creditors” – a sentiment I very much echo.
If the APPG has lots to say on the topic of IPs and their respective professional appointments, it should be supported by appropriate action; not just action to bear down on those IPs doing their best to get the results expected of them, but genuine and supportive action which would allow IPs to do their jobs most effectively with sufficient resourcing and assistance (such as the government taking a more active creditor role in insolvencies, given that HMRC is more often than not the single largest unsecured creditor) in addition to a level of independence and autonomous decision-making to get the job done.
It seems that there are a lot of suggestions in the report as to what Parliament could do to prevent the few IPs who allegedly stray from the path, but the reality is that IPs should be wholeheartedly supported in the already tough circumstances with which they have to deal, without undue criticism from a few MPs as a result of a few bad apples.
As the lockdown restrictions imposed by the pandemic continue slowly to be reduced, the country faces a very challenging period ahead. Directors will need, and properly should, be able to repose great confidence in IPs to help them to navigate some of the difficult decisions ahead – something that my colleague Mike Pavitt touched upon in his recent blog.
The APPG should be looking to help instil confidence in the profession, and not simply tar all IPs with the same brush as those who have clearly crossed a line.
Whilst the APPG’s comments will doubtless be taken into account as part of the governments wide ranging review into the regulation of insolvency practitioners, it remains to be seen what changes will be legislated over the coming months.
We look forward to opportunities to assist both companies and individuals over the coming months, and if necessary to allay any concerns alongside (if appropriate) facilitating an introduction to suitable IPs who can provide and/or signpost practical and cost-effective solutions.
If you have any questions in connection with this blog, or require any advice relating to insolvency, bankruptcy or corporate restructuring, please feel free to contact myself, or another member of the Corporate Restructuring & Insolvency team.