201503 CM March

INSOLVENCY NEWS
THE BIGGER PICTURE –
PERCEPTIONS COUNT
THERE has been comment in
these pages and elsewhere about
the views that some creditors
and others have of insolvency
practitioners. To some extent, IPs
recognise and accept that they will be
unloved in some quarters. They are, after
all, dealing with stressed situations where
by the very nature of the process some
parties will lose out, whether that be the
loss of a business, job or money owed, or
perhaps an acquisition opportunity. That
doesn't mean however that IPs should not
look to improve their collective reputation
and standing in the business community.
There is a role for professional bodies
to play in that, but the biggest impact
individual insolvency practitioners can
have is in the way they deal with the
cases over which they are appointed.
Complaints often arise through issues
around communication and allegations of
self-interest.
Potential conflicts and other issues
around objectivity are covered by a
profession-wide code of ethics, and that
lies at the core of the professionalism
IPs are expected to demonstrate in their
everyday work. Monitoring to check
performance against those standards is a
key role for regulators. But what can IPs
do to help address any misconceptions
about their integrity?
Fees are an obvious point of
contention. Changes this year will likely
encourage, if not require, IPs to provide
estimates at the commencement of cases,
so that creditors have a benchmark. Some
IPs may foresee difficulties with this and
resist the new measures, but it could be
the single biggest factor in restoring trust
in the profession. The IPA president Mark
Fry is engaged with the Insolvency Service
and other stakeholders to find ways of
ensuring that any new regulations can
work in practice.
There will be some tricky issues
along the way, but for the profession and
creditors alike it will bring transparency,
and may permit the continuation of
charging by reference to time given.
That is important to practitioners, and
can be used to good effect in appropriate
circumstances, but with it comes the
burden (if not greater than at present, at
least in sharper focus) to demonstrate
value for those whose money is at stake.
The Insolvency Service is clear that
this requires IPs to move away from
open-ended arrangements towards a
justification that demonstrates fees are
commensurate with necessary work done
in furtherance of the IP’s duties, i.e. in best
interests of creditors.
Pre-pack administrations represent
another challenge where change is
afoot. The use of a pool of business
opinion providers may seem superfluous,
but is supported by creditor bodies
including the CICM and could go some
way to enhancing confidence in a process
that everyone recognises as having a
place in the restructuring agenda, but will
always attract criticism. Whether prepacks
are ‘an inherently good thing’
as some would claim is debatable;
they are certainly recognised (most
recently by Teresa Graham in her report
to Government and in its response)
as having a part to play in recovery. A
new Statement of Insolvency Practice
16 scheduled to take effect in April will
place new disclosure requirements on
practitioners, and seek to encourage
connected purchasers to approach a new
pre-pack pool.
Whether the new measures work (as
much in creditors' eyes as any others)
may have a significant influence on
perceptions about the effectiveness of
the insolvency regime. New regulatory
objectives, strengthened oversight powers
for the Service, and the changes to fee
arrangements and pre-packs will all
be factors when the next review of the
system takes place. It is in creditors’ and
practitioners’ interests to not only make
the formal insolvency processes work
effectively, but to invest some effort in
making sure that they are seen to be so.
Whether the new
measures work (as
much in creditors’ eyes
as any others) may have
a significant influence
on perceptions about
the effectiveness of the
insolvency regime ...
– DAVID KERR MCICM
David Kerr MCICM is the
Chief Executive of the Insolvency
Practitioners Association (IPA).
CREDIT MANAGEMENT
CM
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