Credit Management March 2020

INSOLVENCY SPECIAL
NOISES OFF
Are creditors’ voices really being listened
to in insolvency cases?
AUTHOR – David Kerr FCICM
David Kerr FCICM
SO, Brexit is ‘done’! Whatever
our views may have been
on the in/out decision, there
is some consensus I think
around the idea that the
leave vote was in part at
least the result of some voters feeling
that their voices had not previously been
heard sufficiently. There is something to
be learned from that perhaps in other
spheres.
In the credit world, there could
reasonably be a similar sense of
disenfranchisement over issues such as
the return of government preferential
status – relegating the standing of other
ordinary creditors in the insolvency
pecking order. Creditors’ representations
were largely ignored by the Treasury, and
so we will see the new priority coming
into effect this April. Trade and other
non-governmental creditors can expect to
receive smaller dividends in those cases
where there are sufficient funds to make
any level of return.
The failure to take into account
creditors’ views was certainly not a
consequence of any shortcomings on the
part of the Institute to make the case for
a re-think. CICM’s representations were
in the mix as they always are on these
issues, with Philip King FCICM taking a
close personal interest and leading on
consultation submissions to government.
That, happily, gives me an opportunity to
extend my personal best wishes to Philip
as he moves on. Thank you, Philip, for
all you have done for CICM; you will be a
tough act to follow!
PRE-PACK SCRUTINY
Looking forward, there is some indication
that creditors’ views on another
contentious insolvency issue have been
taken on board by the government’s
Insolvency Service. Pre-pack sales by
administrators to connected parties
(such as former directors etc) have
been looked at before, with a number
of recommendations having been
implemented to increase transparency
and accountability in those cases. One
such measure was the introduction
of the Pre-Pack Pool (PPP) to provide
independent scrutiny of sales to
Pre-packs will not
be outlawed, but
we could see some
further efforts
aimed at reassuring
creditors in the
connected party
cases.
connected persons and some assurance to
creditors that the deals were reasonable
(or not, as the case may be) in all the
circumstances. Actually, in most cases
where the PPP was engaged, it found
no reason to challenge the transactions.
Unfortunately, as this has been a
voluntary step taken by prospective
purchasers, the referral rate has been
disappointing, and the Service is
reviewing the position again to decide
what further legislative or other steps it
should take to address lingering concerns.
Pre-packs will not be outlawed,
but we could see some further efforts
aimed at reassuring creditors in the
connected party cases. In this respect
perhaps it could be argued that creditors’
representations over recent years have
been heard. One measure hotly tipped
for review is the voluntary nature of the
referrals to the PPP, with the possibility
of some sort of compulsion, though this
presupposes that creditors want more
reports to read and that a PPP or similar
opinion on a pre-pack deal will influence
suppliers’ approach to future trading
with the new company. There is a risk
that the costs of executing a pre-pack
rescue will increase for no tangible gain,
other than maybe the ‘satisfaction’ from
the oversight regulator’s point of view
in seeing practitioners and purchasers
jump over some newly created hurdles.
Whatever the Service decides, we can
expect an announcement shortly.
REGULATION OPPORTUNITY
On regulation of IPs more generally,
creditors will have an opportunity this
year to make their voices heard through
a consultation. Last year the Service
issued a call for evidence, and CICM
amongst others responded to a series of
questions about the effectiveness of the
current regime, which has been largely
unaltered since licensing first came into
force in late 1986. However, whilst the
legislation around authorisation has not
changed a great deal, the practicalities of
delivery certainly have, with considerable
rationalisation in the sector amongst
regulators.
That can bring advantages in terms
of fewer regulators and the potential for
greater consistency in terms of delivery
of the key regulatory functions, such as
monitoring and complaints handling. The
effectiveness of the regulation of IPs is the
domain of the Service, so in one sense it
is reviewing (with some public input) its
own performance over the years. There
are some who might take issue with the
robustness of its oversight, for example
regarding the time taken in complaints
processes, so it was interesting to see the
Service floating the idea that it could be
the single regulator of IPs.
Importantly, all stakeholders will have
a further opportunity to make their voices
heard when the Service consults on its
proposals. It is one that creditors should
take, individually as well as through
CICM and its officers. We may be losing
our King, but the Technical Committee
and Philip’s successor will ensure that
creditors’ view are heard loud and clear!
David Kerr FCICM is an insolvency
practitioner with extensive regulatory
experience and a member of the CICM
Technical Committee.
Advancing the credit profession / www.cicm.com / March 2020 / PAGE 11