Contractors, the secret world of insolvency and business rescue just got opened up, sort of
Ever since the UK’s ancient insolvency regime was ‘modernised’ back in 1986, its inner workings (and even some of its advisers) have operated behind a protective veil of semi-secrecy, with a frustrating lack of public information available to those who need its services, including PSCs seeking fixes to financial problems, writes Nick Hood of Opus Business Advisory Group.
The company closure profession is being dragged into the 21st century
That modernisation still left some relics of the Victorian era, in which the concept of an Insolvency Practitioner (IP) developed. So the government last year consulted on reforms necessary to drag the profession into the 21st century and finally published its proposals just two months ago, in September 2023.
Although there’s a distinct lack of meat on the bones of the proposed changes, they still mark a clear step towards making interacting with one of the UK’s 1,600 IPs much less of a leap in the dark. And so this alone is a reason to be cheerful, contractors, even if Autumn Statement 2023 is just around the corner!
Limited companies will be able to look up IPs on a public register
Just like IPs can look you up on Companies House, you’ll be able to look them up too!
In fact, there’s going to be a public listing of all individual IPs and firms offering insolvency services with, significantly, details of any previous ‘professional convictions’ against them for wrongdoing.
So, not only will contractors get access to a full list of who’s on-hand to help, but they’ll also get to see which of the potential helpers have been naughty!
There’s actually some sensible thought there. No longer will PSCs just have to rely on referrals from their contacts in the industry, or worse; that certain someone down the pub who’s so painful to talk to that you’d agree to use just about any old company, if only he’d leave you alone!
The government is making IPs’ firms responsible too
One of the more bizarre surviving historic oddities is that formal insolvency appointments, a liquidator or administrator, for example, are personal to that IP. In other words, they may work for a big accountancy firm, for instance, but it’s the individual whom a contractor has to engage with.
Possibly, the IP’s behaviour and actions may be influenced or even controlled by non-professionals who own and run their firms, which aren’t regulated -- and, in almost all instances, the firms cannot be sued for the actions of the IPs who work for them. More oddities indeed.
Factories probably have the fear…
Well, under the proposals, firms will have to be authorised just like individual IPs and will be subject to the same stringent regulation. They can be prohibited from offering insolvency services unless they are properly authorised, and they will subject to the full range of professional sanctions.
This regulatory step-up should go a long way to eliminating the abuses committed by a relatively small number of firms. Especially, the so-called ‘factories’ which offer cut-price solutions to contractors, either as individuals or to their PSCs, which can leave contractors in all sorts of difficulties, at the worst possible time, through their corner-cutting ways.
Reforming the insolvency bonding scheme
Currently, IPs are required to take out insurance bonds on every case they take on, essentially providing a source of redress for those who suffer losses as a result of fraud or other dishonesty by the practitioner.
There have been calls for reform of this system for some time. The government has announced some initial improvements, but it’s actually set to propose further reforms in due course. This new bonding system will be at the heart of protecting the interests of stakeholders like contractors.
How about a compensation scheme too?
The government has decided that a system of redress and compensation should be a core part of creating public confidence in a modern insolvency and business turnaround framework.
Further work will be carried out to establish how such a scheme could operate.
Detailed proposals will be presented to stakeholders as part of a future consultation, so this is clearly some way off from becoming reality.
When will all of this happen? Good question
Some might say that our recent governments have been long on words and short on action! There’s understandable irritation from taxpayers where reforms are the pet project of a particular minister, who could be subject to the extraordinary merry-go-round of ministerial appointments -- a merry-go-round which has given us seven different business secretaries in the past seven years!
Perhaps someone in Whitehall has said ‘it’s time to get off,’ or at least ‘stop this circus,’ at least based on the ‘look and feel’ of this legislative update for the business turnaround sector. As a result, these proposals for insolvency reform have been welcomed by almost all stakeholders in the UK’s business rescue regime, including IPs themselves and their representative bodies. Even so, these nice-sounding, overdue ideas are maddeningly short on details and the lack of any timetable for their implementation is worrying.
For PSC contractors, it’s good news -- at some stage
Nonetheless, a better world is coming for those who have to interact with IPs, with a modernised framework, increased transparency and a strengthening of regulations, all of which should lead to greater confidence for contractors when engaging business rescue services. And all of that can only be a good thing, given that the closure of a company can be a testing, even traumatic time. Let’s just hope contractors and others who should benefit from this can be patient, not just financially distressed, as no government timetable for the reform’s introduction indicates holding your breath could see you go the way of the company you need an IP for in the first place!