Annual Report 2009
Review of IPC Recommendations 2000-2008
Treatment of the matrimonial home in bankruptcy (2000)
Recommendation: ‘It was recommended that a standard of best practice should be set, which would reduce the uncertainty and unfair treatment that is sometimes evident in the disposal/realization of the equity in the matrimonial home in the case of the bankruptcy of the sole or joint owners.’
Outcome: Following lobbying of the government by the Association of Business Recovery Professionals (R3), the Bankruptcy Advisory Service and ourselves, significant improvements were incorporated in the Enterprise Act 2002 which required Trustees in Bankruptcy to take any action to realize the debtor’s equity in the matrimonial home within 3 years of the date of the bankruptcy. This removed the opportunity for long-term speculation by IPs of
inflation increasing the value of properties.
Better information and advice for debtors on IVAs and other debt solutions (2000 and 2004)
Unsatisfactory Individual Voluntary Arrangements (2000)
‘The IPC recommended that, where an IVA is being considered, the IP should be required to give the debtor a written explanation, signed personally by the IP, of all the options open to the debtor with an indication of the relative advantages and disadvantages of each.’ The profession responded positively to this suggestion by amending SIP 3 and producing a booklet –‘Is an IVA right for me?’- which is given to the debtor before the decision is made on the appropriate course of action.
Best advice to debtors (2004)
‘That IPs or members of their staff authorised by the IP should have a thorough discussion with an insolvent debtor and then make a fully detailed assessment of their circumstances with the pros and cons of the options open to them with a reasoned recommendation of which option is the most appropriate for the debtor’s circumstances and to provide the debtors with a copy. A copy should also be retained as part of the IPs records
for the monitors.’ This recommendation was reflected in a further revision of SIP 3 and similar provisions were agreed between the
banks and the insolvency profession in the IVA Protocol agreed in 2008.
Simplifying Individual Voluntary Arrangements (2003, 2005 and 2008)
In its Annual Report for 2003 the IPC recommended that ‘The IVA as currently structured is too complex and, therefore, too expensive for many cases of personal indebtedness. Consideration should be given by the profession in conjunction with the IS to designing a simpler product, which would suit many more cases.’ The IPC subsequently gave evidence to a working group set up by the IS to look into simplifying the IVA process. In the Annual Report for 2005 we supported the IS’s proposals for a Simplified IVA (SIVA) In the event the IS’ proposals did not meet the criteria needed to amend primary legislation governing IVAs through a Legislative Reform Order and so some elements in the SIVA proposals were shelved. Some simplification of SIVAs
has, however, taken place through the IVA Protocol. In its Annual Report for 2008 the IPC recommended that the IS take the earliest opportunity to reintroduce the substance of its SIVA proposals, in particular to remove the requirement for IVAs to be registered with the court and the proposal to reduce the majority of creditors required to approve an IVA from 75% to 50%.
Debtors excluded from IVAs (2008)
‘The IS and insolvency regulators to monitor the IVA market for debtors who can only make monthly repayments of less than £200 are unreasonably being refused IVA's. If necessary the government should put pressure on creditors to be more flexible in cases where IVAs are likely to produce a better return than bankruptcy.’ The principle of this recommendation was supported. The issue remains under discussion in the IVA Standing Committee. Some, but not all creditors have started to accept IVA proposals with lower repayment levels.
Advice on bankruptcy (2008)
‘The insolvency regulators should monitor the advice given by IPs to satisfy themselves that debtors who have insufficient surplus income to repay their debts within a reasonable period and for whom statutory relief is therefore justified, are appropriately advised about the option of bankruptcy.’
The JIC reported that this was already happening in accordance with SIP3 and SIP3A.
Better information and statistics on IVAs and DMPs (2001, 2002 and 2004-2008)
The IPC has made a series of recommendations in these years on the need for the IS and the RPBs to collect and publish regular information about IVAs. These recommendations covered three main points:-
- The collection and regular publication by the IS of aggregate statistics showing the numbers of IVAs taken out each year and the duration and completion/failure rates of IVAs taken out in each year. (Recommendations made in 2002, 2004 , 2005, 2007 and 2008);
- The provision by the IS to each of the RPBs of regular statistics showing the completion/failure rates of the IVAs set up by each of the IPs licensed by them, which the RPBs could use to focus their monitoring of IPs with above-average failure rates. (Recommendations made in 2001, 2002, 2005, 2006 and 2008);
- The publication of regular statistics available to the general public showing the completion/failure rates of individual IPs. (Recommendations made in 2002, 2006 and 2007).
Substantial progress has been achieved on the first two of these points, though the implementation of them has taken some time, because the data collected by the IS was not initially available in electronic form. The IS now provides the RPBs with regular statistics on the completion/failure rates of IVAs for each of the IPs they license. We understand the RPBs’ monitors use this information in deciding on the frequency with which individual IPs or debtadvice firms need to be monitored. In 2009 the IS began publication of aggregate annual statistics for the number of IVAs taken out and the numbers completed or failed in each year. These figures are available on the IS website. There has, however, been no agreement on the publication of the completion/failure rates of individual IPs.
Statistics on Debt Management Plans
In our Annual Reports for 2007 and 2008 the IPC recommended ‘that the IS and the RPBs should work with creditors, their agents and the Debt Resolution Forum to reach agreement on the annual collection/publication of similar statistics on DMPs to those now published by the IS on IVAs. The 2007 Report also recommended that the IS should carry out further research on the reasons why IVAs fail.’
The proposal on trying to obtain statistics on DMPs has been discussed and agreed in principle by the IVA Standing Committee, but no further action has yet been taken. We understand that R3 and the IPA are considering further research into the performance of IVAs.
Accountancy rules for writing off impaired personal debt(2008)
‘That the government investigates the accounting solvency rules which allow creditors to reduce the extent to which they write down impaired debts covered by DMPs compared with IVAs and bankruptcy.’ This has been discussed with the IS and is mentioned in the IS survey of the effectiveness of the IVA Protocol as
an issue raised by some IVA providers.
Timely correspondence with debtors and creditors (2000, 2004, 2005 and 2006)
The IPC has made repeated recommendations in each of these years to the JIC to adopt a formal standard of best practice requiring IPs to reply to letters from debtors or creditors within a minimum of 10 working days. If a substantive reply cannot be sent in this time-scale a holding reply should be sent.
The recommendation in our Annual Report for 2000 was accepted by the profession although not incorporated as a SIP but as a recommendation by RPBs through their newsletters. However, evidence from the number of complaints against IPs for late replies suggest that the problem has not been solved. The JIC has, however, declined to accept the IPC’s subsequent recommendations to set a formal standard of best practice on the grounds that this would trigger the need for a full investigation of every complaint about late replies. However, following our 2005 Report all IPs were reminded of the need for prompt dealing with correspondence in a Dear IP letter from the IS. The JIC has also given an assurance that the RPBs’ monitors will continue to keep an eye on the timeliness of IPs’ correspondence and that the RPBs will take appropriate action where they judge it necessary.
Fees and disbursements (2001)
‘That the IP should give a clear indication in writing in advance of the likely costs and charges especially in relation to IVAs.’ The amendments made to SIP 9 have gone some way to resolving this issue. We still retain the concerns about ‘value for money’.
Fixed fees for SIVAs and that monitors should assess whether IPs are meeting with the Practice Statement and SIP 9, ie, to provide sufficient information about the work they have done to enable their creditors and the courts to assess their value for money and effectiveness.’
The JIC believed that it is not the role of RPBs to set fees as this must be done by legislation and that SIPs 7 and 9 provide sufficient guidance. However this recommendation was supported by others, eg, Chief Registrar Stephen Baister.
Proper and effective resources for monitoring units (2001)
‘Monitoring units of all the RPBs need to be properly and effectively resourced to maintain the high standards expected from the profession if self-regulation is to be maintained.
The JIC should look into the effectiveness of
the various monitoring bodies.’
At the time (2002) the IPC was assured by the JIC that the monitoring units were properly resourced. Since then there have been significant changes to the way the majority of IPs are monitored.
Simplification of the insolvency regulatory structure (2001)
That the RPBs give urgent consideration to seeing what can be done to simplify and speed up the regulatory processes. We also recommend that the Insolvency Service should cease to license IPs directly as, in our view, this role is inconsistent with its role as Regulator of Regulators.’
The profession’s initial response was that what was needed was co-operation between the RPBs. Such cooperation, however, has recently shown signs of unraveling. The IPC believes a strengthened JIC is crucial to the objective of ensuring consistency in all areas of regulation and its enforcement. We aim to work together with the JIC to achieve this.
With regard to the role of the IS in granting licences to IPs, recent changes to the level of licence fees charged to IPs by the Insolvency Service to cover the costs of regulation and monitoring has led a number of IPs to give up their licences or move to other RPBs.’
Regulation and monitoring (2003)
‘The RPBs need to adopt a more proactive approach to regulation and not just react when a complaint is made. This may well require an enhancement of the number and quality of monitoring staff.’
Some of the RPBs reacted strongly to this recommendation; and disputed our claim that there were grounds for improvement. Subsequently, the IPA and ICAEW agreed to wind up the joint monitoring exercise through JIMU at the end of 2004. Each RPB is now running its own and very different monitoring process. Both state that changes and enhancements have been made. The IPC intends to review how the monitoring system is working in the near future.
Joint Disciplinary Body (2003)
‘The RPBs should consider creating a joint disciplinary body in a similar way to that created by the Actuaries or at least a joint fact-finding and investigation unit.’
In order to maintain public confidence in the system of self-regulation, the RPBs must show a consistent approach to disciplinary issues in relation to insolvency practice. The IPC was and remains concerned that the JIC rejected this suggestion out of hand. However, following a proposal put by the IPA to the JIC in August, consideration is being given by the JIC to closer cooperation between RPBs on some of these issues. More information on the proposals put forward by the IPA has been requested by the JIC. There is an opportunity for the JIC to take a proactive role in ensuring a consistent approach to disciplinary procedures by the RPBs. The IPC made further recommendations about the handling of complaints and disciplinary cases in its Annual Reports for 2007 and 2008.
Aged bankruptcy cases
‘The large number of old bankruptcy cases being passed out by the Protracted Realisations Unit of the Insolvency Service are being dealt with in many different ways by IPs. There does not appear to be a standard approach and we recommend that the Insolvency Service issues some form of guidance.’ (2003)
The Insolvency Service reacted promptly to this recommendation and issued additional guidance to IPs in this very sensitive matter.
That the IS and the RPBs should require administrators, when reporting on “pre-packs” to the body of creditors, to give a prompt reasoned explanation of why they decided against putting the business up for sale on the open market even for a short period and why so doing would have been detrimental to obtaining a better price for the business. They should also to draw their IPs’ attention to the potential conflict of interest in accepting an appointment as administrator having advised the company on the “pre-pack”.’
The former recommendation was taken up in the accelerated production of SIP16 but not the latter as it was stated by the JIC that the monitors already had regard to ethical considerations in the new draft insolvency ethical code
when looking at such cases.
‘That the IS and the insolvency regulators should check that all reasonable steps have been taken to market the business or to approach other possible buyers, monitor compliance with SIP16 and check for wrongful or fraudulent trading.’
This was taken up. The IS has monitored IPs’ reports for the last 12-months to assess their compliance with SIP16.
Reports under the Company Directors Disqualification Act 1986 (2006)
‘That the government’s action in cancelling a substantial proportion of the planned investigation programme into IPs’ reports under the CCDA 1986 (“D Reports”) is damaging to the public interest.’
This concern was echoed by the JIC and others urging that sufficient resources be made available so that
misconduct may be investigated in all appropriate cases. We have subsequently been reassured by the IS that their track record in investigating D Reports is now substantially improved.
Complaints handling by IPs (2007)
‘That the IS and the regulators require all their IPs to ensure that their firms’ complaints handling systems include an option for making redress. To enable any personal debtor to take a complaint related to poor debt advice to an independent arbitrator. Also to seek clarification from the Financial Ombudsman Service (FOS) on its limits of jurisdiction in relation to complaints against IPs.’
The regulators saw no benefit in imposing such requirements on IPs. However, those firms with standard Consumer Credit Licences (CCLs) already had this facility, ie, access to the FOS by complainants and the possibility of
redress. But IPs in other firms covered by group CCLs held by their accountancy licensing body did not have this facility for complainants. The IPC asked both the OFT and FOS to find a way to have the same option open to all complainants regardless of what type of CCL the IP was working under.
Complaints handling (2008)
‘That all debtors who believe that they have been given bad advice by an IP are able to bring their complaint to the FOS.’
The RPBs through the JIC rejected this proposal.
‘That there should be a distinct complaints procedure for handling those complaints which fall short of the threshold required
for disciplinary action.’
This was being considered by the regulators but no action noted during 2009. The JIC felt that evidence or case study material
was needed in order to convince the accountancy RPBs that change was needed.
‘There should be a distinct complaints procedure for handling those complaints which fall short of the threshold required for disciplinary action, eg, isolated cases of inadequate professional service.’
The JIC still had misgivings about such a redress-based system and had doubts about the legal status of any reward as regards a bankrupts’ estate or as a windfall in an IVA. It saw no evidence that complainants were being disadvantaged by the existing
‘That there is an independent reviewer of complaints to whom a complainant can appeal if their complaint is rejected in the first instance and that the independent reviewer should be able to award appropriate redress to complainants whose complaint is upheld.’
The JIC considered that its Insolvency Guidance Paper dealing with complaints handling recommending that complaints should be reviewed by another principal in the firm or by an independent practitioner was sufficient.