This Annual Report gives the IPC’s views on two main policy issues that came to the fore in 2010 and which are currently under consideration by the government:-
How to improve the solutions available to distressed personal debtors and to discourage mis-selling by debt advisers, including IPs; and
The proposals put forward by the Insolvency Service (IS) on the future regulation of the insolvency profession in response to a report by the Office of Fair Trading (OFT).
In October 2010 HM Treasury and BIS Ministers published a consultation document entitled “Managing Borrowing and Dealing with Debt” which invited evidence on the workings of the debt advice market and on how the quality of advice given to personal debtors could be improved. The IPC stated in its response to this consultation made in December last year that there is sufficient evidence available from the OFT’s survey of the commercial debt advice sector published in September 2010 and other sources to prove the existence of a number of abuses, including inappropriate advice and probable mis-selling. We recommended three measures to help reduce the risks of poor advice and mis-selling:-
- Better information for debtors. All debt advisers, including IPs, to provide their customers with up to date information about the duration and completion/failure rates for IVAs and Debt Management Plans (DMPs) and a statement of their own fees and charges before the debtor commits to any arrangement
- IPs and debt advice firms should use agreed income and expenditure categories and expenditure allowances to determine debtors’ surplus income and agreed criteria for assessing the most appropriate debt solution. The debtor should be given a balanced statement of the pros and cons of the alternatives,
when he/she might be eligible for more than one option; and
- Stricter and more frequent monitoring of the advice given to debtors and the subsequent monitoring of the management of their cases by IPs and other debt advisers.
We also suggested three legislative changes to improve the debt solutions available to debtors at all levels of income and indebtedness: raising the £15,000 ceiling on debts which can be written off through a Debt Relief Order to £30,000; limiting the duration of any debt solution (statutory or informal) involving continuing payments by the debtor to a maximum of 10 years and; if the evidence justifies it, a new statutory scheme providing relief from interest and other charges for debtors who can repay their debts in full. The Scottish Debt Arrangement Scheme (DAS) may provide a model for such a scheme in the rest of the UK .
Proposed Changes to the Regulation of the Insolvency Profession
In June 2010, the OFT published a report into the market for corporate Insolvency Practitioners. It recommended a number of specific measures to make it easier for unsecured creditors to challenge IPs’ fees. In addition, the report recommended setting up a new complaints body either to take over entirely from the Recognised Professional Bodies’ (RPBs) complaints systems or to provide an independent appeals body and also proposed significant changes to the system for regulating IPs. These included changes in the relationship between the IS and the RPBs, in the arrangements for setting professional and ethical standards for IPs and in the possible future role of the IPC. The IS published its response to these proposals in a consultation document on 12 February 2011
to which the IPC responded on 25 March as follows:-
Enabling Unsecured Creditors to challenge IPs’ fees:- We agree with several of the changes proposed by the OFT and IS, in particular on the need for greater transparency regarding fees. We propose mediation followed by a paper-based independent review or arbitration to settle fee disputes as an alternative to the courts or to the proposed complaints body;
Reforming the RPBs’ Complaints Systems:- Our view is that complainants against IPs should have access to a complaints system which covers poor service and can offer financial and other redress. It should be distinct from disciplinary proceedings and allow complainants to appeal to an independent reviewer. We believe that these changes can be achieved most economically and effectively through reform of the RPBs’ arrangements and that the creation of a new public body is unnecessary. Personal debtors should be able to go direct to an independent reviewer without going through the RPBs’ complaints system;
The Role of the IS:- We agree that the IS should cease to license or regulate IPs except as a last resort. We also agree that the IS should be empowered to impose a wider range of sanctions on the RPBs for regulatory failures;
Standards Setting:- We agree with the OFT’s proposals for speeding up the work of the Joint Insolvency Committee (JIC) in setting binding professional and ethical standards. We also favour adding independent lay members into the JIC and requiring the JIC to consult all directly and indirectly affected parties on their proposals. We disagree with IS’s proposals to create a new standards setting body in which the RPBs are in a minority and/or to take standards setting into its own hands;
The Role of the IPC:- We agree with the OFT’s proposal that the IPC (or an alternative “voice organisation”) should continue in its present role but also be given a remit to review whether the RPBs and the IS are meeting their proposed statutory objectives and to champion the interests of personal debtors and unsecured creditors. We do not agree with the IS’s proposal to exercise the IPC’s role itself, given the conflicting objectives the IS has to manage.
Other Recommendations:- We make some additional recommendations, which include the need for the RPBs to find a way to get IPs to communicate more promptly with third parties.