Credit Management January February 2022

INSOLVENCY
AUTHOR – David Kerr FCICM
It is a kick in the teeth for the profession
without doubt, and in many quarters will
be unwelcome, but it seems clear that the
Service has become frustrated with progress,
or lack of it, in the present system.
insufficiently effective in keeping pace
with market developments.
One change on which there is some
consensus is a need to regulate firms as
well as individual IPs, but that change
could be made without the need to turn
the whole system on its head. Arguably
the acknowledged shortcomings in this
respect are the product of the statutory
position, rather than a failing on the part
of the RPBs (some of which had argued for
the statutory power to regulate firms).
One small dividend for creditors and
others might be a new compensation
scheme which could be introduced to
deal with situations where things go
wrong, though claims might be capped
at a notional level and might be used
mainly to address consumers’ concerns in
personal cases.
And what of pre-packs, which the
service cites as an example of the
voluntary approach to regulation not
working sufficiently well. But the review
to consider how to address concerns about
Phoenix pre-packs was a Governmentcommissioned
one, on the back of which
new arrangements such as the Pre-Pack
Pool were introduced. Referrals to it
were voluntary, as recommended by its
author, and endorsed by the Service.
Certainly, the number of referrals fell far
short of what had been hoped for, and in
this respect maybe IPs have helped the
Service’s cause as it now cites the need
for its subsequent intervention to make
referrals to an evaluator compulsory
as an example of the failure of the
hitherto consensual approach, but the
initial solution to the perceived pre-pack
problem was not one designed by the
professional bodies. Could the profession
at large/ its practising members have
done more to assuage creditors’/others’
concerns about pre-pack deals? Possibly.
But is it reasonable for the Service to cite
this as a reason for it to take a ‘more active
role’?
Another factor – relevant but skirted
over in the consultation document – is
the issue of inconsistency caused by the
number of regulators. This was of more
concern in 2015 than now, as there were
more RPBs then and the scope for gaps
in the system was greater. Just two bodies
currently account for 90 percent of IPs in
England & Wales, with cooperation on
standards, a joint entry examination, one
common code of ethics, one complaints
portal and a common sanctions guide.
If there are significant differences in
their approaches to complaints and/or
monitoring, why would the Service as
oversight regulator not have addressed
these before now? – if necessary, using
the graduated tools available to it for just
that purpose?
THE RIGHT SOLUTION?
In some ways the proposed solution
is smart in that it takes control of key
regulatory elements while embracing
monitoring expertise within the RPBs.
However, there is no indication of
how complaints might be handled
more efficiently within a Government
department (nor how they might be
dealt with more quickly – something
it could have addressed with the RPBs
previously), nor how it might intend
to be more robust on sanctions (with
bigger fines maybe? – something it could
have addressed with previous proposals
for changes to the common sanctions
guidance), or how more generally the
proposed course of action furthers the
public interest by ripping up 30+ years
of regulatory experience and starting
from near scratch. That move appears
to sit awkwardly within the context of
experience in other jurisdictions, where
Government regulation might be the norm
in a fledgling regime, but where a move
to private ‘self-regulation’ might be seen
as an indication of regulatory maturity as
systems develop and professional bodies
build their capacity to take on these
functions and, crucially, are trusted to
do so.
And this is the knub of it…trust. The
bottom line here is that the Service
clearly believes that there is a lack of
trust in the present UK regime, such that
it feels it must act decisively to restore
public confidence before it is too late.
Whatever voices have been heard the
loudest, the trust factor is perhaps what
really explains this rather drastic and
unexpected move. It is a kick in the teeth
for the profession without doubt, and
in many quarters will be unwelcome,
but it seems clear that the Service has
become frustrated with progress, or lack
of it, in the present system. Some will
believe the change is overdue and that the
profession deserves what’s coming, but
time will tell whether the change if/when
implemented will bring about the desired
improvement and whether creditors and
other stakeholders will feel better about
the new ‘independent’ system in say five
years from now.
Could an alternative package of
measures have worked satisfactorily to
address the perceived shortcomings? A
combination maybe of the new regulation
of firms, with more effective use of the
Service’s current oversight powers to
iron out any inconsistency between RPBs
or failure to respond to a nudge when
improvement is required, and perhaps
also a move towards greater independence
of the RPBs through the stipulation of
a majority of independent directors on
their governing boards – such as under
the Indian Insolvency & Bankruptcy Code
of 2016.
No system is perfect, and IPs expect to
be unloved to a degree, but this jolt seems
harsh on the majority of IPs, who for
the most part are working to the highest
standards in difficult circumstances,
and on the majority of those in the
professional bodies, who for the most part
are working diligently in a challenging
role to maintain professional standards in
the public interest.
David Kerr FCICM is an insolvency
practitioner with extensive regulatory
experience and a member of the CICM
Technical Committee.
David Kerr FCICM
Brave | Curious | Resilient / www.cicm.com / January & February 2022 / PAGE 13