182 the context of corporate insolvency law

IPs may be involved in the above four procedures20 but other actors also have roles to play. Thus the Official Receiver (OR), an appointee of the Secretary of State, has important investigatory functions to perform when acting in cases of liquidation.21

The evolution of the administrative structure

Over the last two centuries accountants have sought to dominate insolvency work and have striven with some success.22 For most of the second half of the nineteenth century many accountancy firms earned the vast majority of their fees from insolvency practice and it was, indeed, this work that boosted not only accountants’ incomes but also their professional organisation.23 Accountants throughout this period consistently emphasised their superior professional expertise to lawyers in the insolvency field. By the time that the Cork Committee deliberated, however, a number of worries had arisen, notably regarding the qualifications of those persons engaged in insolvency work.24 The Cork Report itself was concerned that arrangements prior to the date of its inquiry were open to abuse and did not command public confidence.25 The Report accepted the case for a scheme of IP regulation operating under ministerial control and covering all persons, other than the OR, who hold office as liquidators, trustees in bankruptcy, administrative receivers, administrators or supervisors of voluntary arrangements. The regime envisaged by Cork anticipated that IPs would be provided by the private sector but would be required to be members of an officially recognised and regulated professional body capable of exercising disciplinary supervision over an individual acting as an IP. In the case of IPs who did not belong to a recognised professional body (RPB), these would be licensed

20Corporate insolvency procedures do not, of course, exhaust the work of IPs. They are also involved in the personal side of insolvency (bankruptcy) as nominees and supervisors of IVAs and as trustees in bankruptcy. See Finch, ‘Insolvency Practitioners’, pp. 353–4; Fletcher, Law of Insolvency, chs. 3, 4, 7; D. Milman, Personal Insolvency Law, Regulation and Policy (Ashgate, Aldershot, 2005).

21Especially in compulsory liquidation: Insolvency Act 1986 s. 136. The OR is a civil servant and officer of the court. There are currently thirty-five OR offices in England and Wales: see Insolvency Service website, www.insolvency.gov.uk (visited 15 January 2008)

22See Flood and Skordaki, Insolvency Practitioners, ch. 3; C. Napier and C. Noke, ‘Accounting and Law: An Historical Overview of an Uneasy Relationship’ in M. Bromwich and A. G. Hopwood (eds.), Accounting and the Law (Institute of Chartered Accountants in England and Wales, London, 1992).

23Flood and Skordaki, Insolvency Practitioners, p. 10. 24 Cork Report, ch. 15.

25See generally Fletcher, Law of Insolvency, ch. 2; I. Snaith with assistance of F. Cownie, The Law of Corporate Insolvency (Waterlow, London, 1990) ch. 10; Cork Report, para. 756.

individually by the (then) DTI (now BERR) with a view to ensuring proper levels of competence, skill and integrity.

The Insolvency Act 1986 gives legislative effect to the Cork vision and restricts action as an office holder in any designated insolvency proceeding to persons qualified under the 1986 Act.26 Qualification is achieved by the methods advocated by the Cork Report, namely membership of, and authorisation by, an RPB or licensing directly by the Secretary of State. Acting as an IP in any designated proceeding when not qualified to do so constitutes a criminal offence.27

There are now eight RPBs which may grant authorisation.28 This will only be forthcoming for individuals, not firms, and only on demonstrating, through professional examinations, a prescribed level of technical knowledge and expertise in accountancy and law. Since 1990 all applicants to become qualified IPs have been required to pass an examination organised centrally by the Joint Insolvency Examining Board (JIEB), whichever RPB they belong to. They must also be able to demonstrate a minimum level of appropriate experience. Those who apply for quali- fication to the Secretary of State rather than to an RPB must generally pass the JIEB examination, though a discretion to make exceptions exists.29 There are now 1,700 IPs in the UK who are authorised and regulated by the Secretary of State directly or by an RPB.30

26See Insolvency Act 1986 Pt XIII and the Insolvency Practitioners Regulations 2005 (SI 2005/524) and IA 1986 s. 390. Major changes to the rules governing the authorisation and responsibilities owed by IPs were made by the 2005 Regulations: for example, Regulation 6 gives criteria for determining whether a candidate for authorisation is a fit and proper person; Regulation 7 gives requirements as to requisite experience and training; Regulation 11 gives details on annual returns for authorised persons to the Secretary of State. See Regulation 10, Sch. 2, Part 2 concerning the need for IPs to lodge a bond in the form of a security or caution. See further L. S. Sealy and D. Milman, Annotated Guide to the Insolvency Legislation 2006/7 (10th edn, Thomson/Sweet & Maxwell, London, 2007) vol. I, p. 429. Excluded from the qualification requirement are ORs and receivers appointed by the court or by holders of fixed charges. On the lack of equivalence of rules relating to IPs and ORs see G. Pettit, ‘A Level Playing Field?’ (2007) Recovery (Autumn) 3.

27Insolvency Act 1986 s. 389. For authorisation personally from the Secretary of State or from a ‘competent authority’ see IA 1986 s. 392 and the Insolvency Practitioners Regulations 2005 (SI 2005/524).

28The Association of Chartered Certified Accountants (ACCA), the Insolvency Practitioners’ Association (IPA) and the Institute of Chartered Accountants in England and Wales (ICAEW); the Institute of Chartered Accountants in Ireland; the Institute of Chartered Accountants in Scotland; and the Law Societies of England and Wales, of Northern Ireland and of Scotland.

29See IRWP Consultation Document, pp. 13–14.

30See IS Annual Report 2005–6: figures as of 1 January 2006.

184 the context of corporate insolvency law

On insolvency matters the Secretary of State’s functions are exercised through the Insolvency Service (IS), which is an executive agency of the BERR. It is headed by a chief executive, the Inspector General, and employs around 2,150 staff.31 The IS is responsible for, amongst other things, advising on the form and effectiveness of insolvency legislation, ensuring that the RPBs regulate their members properly with suitable rules that are effectively enforced and authorising and regulating Secretary of State authorised IPs.32 The Secretary of State issues a Framework Document setting down objectives for the IS and, as well as monitoring the RPBs, the IS runs a twice-yearly ‘licensing forum’ for discussion of authorisation and regulatory issues with the RPBs.

The bulk of RPB-authorised IPs are accountants, with the dominant membership coming from the Institute of Chartered Accountants of England and Wales (ICAEW). Many of these are not full-time IPs but are general accountancy practitioners, some with audit and investment business clients.33

The RPBs act as self-regulators in so far as they exercise control over their own qualified members, but the system constitutes governmentally monitored self-regulation since the IS supervises the regulatory process, conducts regular visits to each of the RPBs and seeks to ensure that standards are maintained. For their part, the RPBs operate a variety of control measures designed to control and correct misconduct. A range of disciplinary penalties applies to members and includes the sanction of expulsion from membership – which, for an RPB-authorised practitioner, will produce automatic revocation of authorisation.

The RPBs have, since 1994, carried out monitoring visits to all IPs.34 There are differences in style and form of regulation among the eight RPBs (each,

31IS Annual Report 2006–7. Prior to 1 April 2006 the Companies Investigation Branch (CIB) was part of the main DTI (now BERR) but it is now under the auspices of the Insolvency Service. Figures given by the IS since 2005–6 thus include CIB personnel.

32The IS also takes, inter alia, disqualification proceedings against unfit directors (1,200 disqualification orders/undertakings were secured in 2006–7: IS Annual Report 2006–7) and carries out, through its ORs, the functions of liquidators in compulsory liquidations and trustees in bankruptcy. The IS also monitors, on a day-to-day basis, those IPs directly authorised by the Secretary of State. The IRWP Review (p. 22) recommends that this monitoring function ought to be contracted out to a professional body so as to leave the IS to concentrate on its functions as a regulator of the RPBs’ regulatory activities.

33On the historical evolution of the dominance of the accountancy profession over insolvency work see Flood and Skordaki, Insolvency Practitioners, ch. 3.

34In January 2005 the ICAEW and the IPA took their monitoring back in-house (on abolition of the Joint Insolvency Monitoring Unit). On resultant changes in their

for instance, has its own complaints mechanism) and these reflect variations in traditions as well as powers of intervention. A degree of consistency of approach derives, however, from the RPBs’ common subjection to a memorandum of understanding with the Secretary of State35 and to monitoring by reference to common standards required and approved by the IS.

Establishment of the Society for Practitioners in Insolvency (SPI), a multi-disciplinary trade association, paved the way for lawyers and accountants to develop a shared professional perspective on insolvency work.36 Around 80 per cent of all IPs belong to this body, now known as R3 (the Association of Business Recovery Professionals),37 and its activities include assisting with training, continuing professional education and ethical issues as well as the issuing of guidance notes.

Harmonisation of the RPBs’ approaches is assisted, in particular, by the RPBs’ system of best practice guidance. Statements of Insolvency Practice (SIPs) are issued under procedures agreed between the insolvency regulatory authorities (the RPBs and the IS) acting through the Joint Insolvency Committee (JIC), a co-ordinating forum.38 SIPs, the status of which is now ‘required practice’,39 are commissioned by the JIC, produced by R3, approved by the JIC and adopted by the regulatory authorities within each of their own regulatory regimes.40 Differences of regulation do, nevertheless, remain within the overall system. The IS, working within a statutory framework, has, for instance, no sanction against its IPs other than removal of authorisation. The eight RPBs can

monitoring see further M. Chapman, ‘The Insolvency Service’s View of Regulation’ (2005) Recovery (Winter) 24, 25 and further pp. 200–2 below.

35The memorandum covers authorisation, handling of complaints, monitoring activities, best practice and exchange of information between RPBs.

36See Flood and Skordaki, Insolvency Practitioners, p. 37.

37On 28 January 2000 the SPI renamed itself R3: the Association of Business Recovery Professionals.

38The JIC meets four times a year and acts as a forum for discussion of insolvency issues and professional and ethical standards and includes representatives from each of the RPBs and the IS. (R3 has observer status.) The JIC is also the profession’s principal source of contact with the Insolvency Practices Council, a body established to provide an additional public interest input into standard setting in the profession.

39In 2004 the status of SIPs changed from ‘best practice’ to ‘required practice’. See further Chapman, ‘Insolvency Service’s View of Regulation’, p. 24.

40See Joint Insolvency Committee Annual Report 2006, p. 2. Statements of Insolvency Practice (SIPs) have been issued on a number of topics, including liquidators’ investigations into the affairs of an insolvent company, records of meetings in formal insolvency proceedings and remuneration of insolvency office holders. On remuneration see pp. 186–8 below.