consistency and fairness. Significant questions arise, however, concerning its added cost and potential to result in more legalistic, narrower and more restrictive regulation than is optimal.

Departmental regulation

The regulation of IPs might be given over completely to the IS of the BERR with the RPBs relinquishing their supervisory role.157 In terms of accountability, this could be claimed to offer an improved arrangement. At present, the chief executive of the IS (the Inspector General) is responsible for the day-to-day operations of the service. The minister for Employment Relations and Postal Affairs sets the IS a number of published targets and performance against these is monitored by the IS’s Steering and Directing Boards. Members of Parliament can write to the Inspector General of the IS on operational issues and the Inspector General is accountable to, and reports to, the BERR ministers on the progress and performance of the IS with regard to its performance targets158 and the IS, in addition, acts in pursuit of the standards set down under the Insolvency Service Charter.159 Work targets, and figures representing the extent to which these are achieved, are published by the IS in its Annual Reports.160 The Parliamentary Commissioner for Administration (PCA) also has the right to investigate and report on the actions of the IS (though functions of Official Receivers as officers of the court are beyond PCA jurisdiction). Such mechanisms might not offer an unquestionably satisfactory regime of accountability161 but they offer more democratic input (via ministers) than is available with RPBs and they manifest a commitment to the public interest.

157Not under discussion here is a system in which all IPs would be civil servants provided and authorised by BERR. Such a regime would constitute nationalisation of the private practitioner-led machinery now encountered and is unlikely to appeal to the major political parties. Departmental provision of all IPs would give rise to difficulties (notably the BERR’s ability to meet variation in demand for such services – a capacity offered by the private marketplace that would be hard to match) even if costs were passed onto users of insolvency services.

158See IS, Annual Report 2007/8, p. 7.

159BERR, London, 2008.

160See, for example, the Annual Report 2007/8.

161For discussion see N. Lewis, ‘The Citizens’ Charter and Next Steps: A New Way of Governing?’ (1993) Political Quarterly 316; R. Baldwin, ‘The Next Steps: Ministerial Responsibility and Government by Agency’ [1988] 51 MLR 622; G. Drewry, ‘Forward from FMI: The Next Steps’ [1988] PL 505; Drewry, ‘Next Steps: The Pace Falters’ [1990] PL 322.

210 the context of corporate insolvency law

Like the proposal for independent agency regulation, departmental control offers a unified scheme able to formulate, and work to, a single set of objectives but it is open to the same objections concerning duplications of jurisdictions, costs and jeopardy. As for expertise, the IS, unlike a new agency, would be able to draw on over a decade of experience in the field (though both would be able to buy in expertise from the body of existing specialists).

Departmental regulation may address public interest concerns more openly than resort to a mixture of private RPBs but, as noted above, a departmental system does not offer the same impartiality as an independent agency. The bias that outsiders may fear when viewing a departmental regime is that of leaning towards the preferences of the Government in power. In some regulated sectors where valuable franchises or contracts are handed out this may be a special concern.162 Insolvency regulation involves no allocation of such valuables but it usually demands that assets be distributed and government departments, moreover, may be involved as creditors of firms or individuals involved in an insolvency or bankruptcy. It is important, therefore, that IPs should be seen to be acting in a professionally independent manner, free from conflicts of interest.163 Overall, then, departmental regulation rates generally lower than independent regulation as far as perceived fairness is concerned.

Fine-tuning profession-led regulation

The IP regulatory regime now in operation incorporates a large element of self-regulation in so far as most IPs are members of the RPB that supervises them (albeit under IS oversight). Self-regulatory regimes, in general, are said to possess a number of virtues:164 those regulating tend to be specialists in the relevant area; they have excellent access to information at low cost and are in constant touch with developments in the profession; they know which regulatory demands will be seen as reasonable and liable to be complied with readily; they can monitor behaviour easily and in a variety of ways; they tend to know ‘where the bodies are buried’; and they can investigate matters in a less formal way than external regulators. They can, furthermore, employ general

162As, for example, in the television, radio or rail sectors.

163See Anderson, ‘Insolvency Practitioners’; Lightman, ‘Office Holders’.

164See p. 199 above.

professional standards and requirements to achieve results and influence cultures rather than rely on enforcing detailed rules;165 they are financed by practitioners; and they are highly adaptable to changes in the economic, legal and social environments.

Such claims can be made in various forms and with different degrees of conviction for the current IP regulation regime and, rather than move to radical change, it may be preferable to fine-tune that regime. It is worth considering five main suggestions. The first of these is that the existing regulatory bodies should be further co-ordinated, rationalised or amalgamated.

Numerous commentators, including Phil Wallace, Chairman of the IPC Committee at the ICAEW,166 have argued that eight RPBs is too many for the number of IPs (currently 1,700). Here there seems a strong prima facie case for reform and a first question is whether amalgamation of RPBs can be accomplished so as to offer a simpler structure, but one that retains some of the advantages of diversity in ‘home background’. A second issue is whether amalgamations short of establishing a single selfregulatory body would produce a coherence of policy and a consistency of process that outweighs the supposed advantages of diversity. A further key issue is whether public participation in processes and policies can be ensured at sufficient levels to ensure public confidence in the selfregulatory system.

On current co-ordination, it has been noted above that the RPBs already do co-ordinate in a number of respects. They are bound, for example, by a memorandum of understanding with the Secretary of State and they operate with a Joint Insolvency Examination Board. To continue with the present regime and encourage further emphasis on co-operation and consistency (for instance, by making joint insolvency monitoring mandatory across RPBand IS-authorised IPs) would require no new structures and would offer dual control by ensuring that lawyer and accountant IPs would remain regulated both as IPs and as lawyers or accountants (such control being beneficial where it is difficult to tease apart IP and home professional work).

165On ‘interpretive communities’ and the way that shared interpretations can be achieved without resort to further, detailed, specifications by means of rules see Black, Rules and Regulators, pp. 30–7; S. Fish, Doing What Comes Naturally: Change, Rhetoric and the Practice of Theory in Literary and Legal Studies (Clarendon Press, Oxford, 1989).

166See ‘Regulatory Harmonisation’.

of much IP work, moreover, is that the IP uses the resources of the home firm, that the efficiency or otherwise of the insolvency work done may depend as much on the general professional performance of the firm and its employees as on the activities of the relevant individual. Regulating the firm would make it explicit that the support structure and internal controls of the firm are essential to the work of the IP and themselves require regulation.168

To regulate firms expressly would give them an incentive to ensure that their IPs operate to high standards. The firms, moreover, are far better placed than the RPBs or any external regulators to gain information on how IPs are doing their job, to review performance periodically and to remedy or sanction instances of under-performance. To attach IP functions to firms would mean that any qualified IP within the firms might carry out insolvency functions. This might involve some loss of personalisation within insolvency processes, since there would be no guarantee that individual X (rather than firm Y) would carry out the functions at issue. A move to regulate at firm level would, however, improve scrutiny of the context within which IPs operate and would do so without removing responsibility from the individual IP.

A third proposed improvement to the present machinery (and, as noted, a potential addition to a ‘single regulator’ or a departmental regime) would involve the establishment of an Insolvency Ombudsman. This idea has been put forward by a number of parties, including the Cork Committee and Justice.169 An Ombudsman would handle complaints relating to individual cases rather than deal with general issues and the ombudsman process would only come into play after other alternative routes were exhausted (at present each RPB has its own complaints procedure). The Ombudsman might take a variety of different actions, including requiring organisations to correct matters, referring issues back to an organisation for reconsideration, facilitating conciliation between parties and making awards.

Creating an Ombudsman would offer a central location for complaints and a better and simpler public profile for insolvency complaints mechanisms. Establishing such a post has, however, been opposed by

168Ibid., p. 19.

169See Cork Report, paras. 1772–3; Justice, Insolvency Law, p. 25. Ombudsmen are now found in other professional fields. Thus, for example, there is a Legal Services Ombudsman as well as Ombudsmen in the insurance/unit trust, banking, building society and pension sectors. See R. James, Private Ombudsmen and Public Law (Ashgate, Dartmouth, 1997).

even weaker.174 Matters can be raised by a multiplicity of routes: through the courts under the Insolvency Act 1986175 or by resort to the relevant professional body. A host of parties may also be involved: solicitors, estate agents, accountants and other advisers. To make the services of an Ombudsman available to creditors and debtors or other aggrieved parties would provide a mechanism for cutting through such complexities and for appraising the respective responsibilities and performances of a range of professionals in a way not linked to a particular RPB’s perspective. Such an Ombudsman might also be given a general power to make (non-binding) recommendations to the Secretary of State on issues relating to insolvency processes.

A fourth reform that is consistent with both the retention of selfregulation and improved accountability would involve establishing a new independent oversight body, but leaving the RPBs to regulate.176 At present there is a limited form of oversight offered by the Insolvency Practices Council (IPC). This body comprises a majority of lay members and exercises a number of functions: it keeps under review the appropriateness of IPs’ professional and ethical standards; puts proposals to the bodies devising professional and ethical standards for IPs; recommends issues to those bodies for consideration; and considers whether standards, once adopted, are properly observed and enforced.177

The IPC’s first chair was appointed in December 1999 and it came into being in the spring of 2000.178 The IPC is not designed to operate

independently of the existing regulatory regime but to be a body linked to present mechanisms.179 The IRWP Review rejected the notion of setting up an ‘overriding body’ to oversee current structures. It did so on the grounds that the IS offers public accountability through its link to

174See Justice, Insolvency Law, p. 25.

175See inter alia Insolvency Act 1986 s. 6; Sch. B1, paras. 74, 75.

176The legal and the accountancy professions offer examples of recent movements towards independent oversight. The Legal Services Board was set up by the Legal Services Act 2007 as an independent oversight agency and the Accountancy Foundation was set up in 2002 as an independent regulator of the accountancy profession. The Foundation’s functions are now carried out by the Professional Oversight Board (POB), a part of the Financial Reporting Council. (The POB exercises powers delegated by the Secretary of State under Pt 11 of the Companies Act 1989 in accordance with the Companies Act 1989 s. 46: see Companies Act 2006, Pt 42, s. 1252.)

177On the origins of the IPC see IRWP Consultation Document.

178The IPC is made up of an independent chairman with five lay members to provide a majority and three IPs: see p. 206 above.

179IRWP Review, pp. 45–6.

216 the context of corporate insolvency law

the Secretary of State and through its role in overseeing the RPBs: ‘it would not be a sensible task for any new body, set up to reflect the public interest in insolvency regulation, to second guess what the DTI and the IS are already doing’.180 The Review also recommended that the IS should be released, so far as possible, from the duty it has to monitor practitioners directly authorised by the Secretary of State ‘so that it can concentrate wholly on its high level function as a regulator of regulators’.181

Such proposals, however, seem strongly to have reflected the hold that current institutional arrangements had on IRWP affections and, again, fail wholly to convince. The public input being proposed is as modest as it is possible to imagine. The IPC does not draft standards, it merely makes suggestions to R3, which will continue with the drafting of standards. Indeed, the Review specified that the IPC’s remit ‘would not extend to the operational activities or responsibilities’ of RPBs or the IS.182 The IRWP’s opposition to a more powerful, more independent insolvency oversight board was based on the view that such an accountability mechanism would ‘obscure’183 the ministerial accountability to Parliament that operated via the IS. The Review did, however, concede that the (proposed) IPC:

would be a more appropriate forum for continuing interface with the general public than the Service can be … At present when the IS reacts to concerns from the general public … [i]t does so as part of what might be termed the ‘ministerial post bag’ process. The new Council, by contrast, would provide a dedicated (and a visible) contact point for raising such concerns.184

180 Ibid., p. 43. 181 Ibid., p. 7.

182Ibid., p. 48. See Sikka, ‘Turkeys Don’t Vote for Christmas’, p. 7, who comments: ‘The IPC will, however, be a toothless tiger unable to intervene in any specific or live case … [T]he IRWP proposals would not dampen down public anxieties about self regulation, insolvency practices, the absence of an Ombudsman or a compensation scheme.’ There is evidence, however, that the IPC will go public in attacking malpractice and tackling issues of creditor and public concern. The IPC’s Annual Reports of 2004, 2005 and 2006, for example, expressed strong concern about possible misselling of IVAs to debtors on low incomes and made various recommendations to IPs. The 2006 Annual Report also focused on concerns in the corporate insolvency sector regarding the growth of ‘pre-packs’ (see ch. 10 below) and regarding cutbacks in the work of the IS in investigating the reports made by IPs on the conduct of directors of insolvent companies (see ch. 16 below). The IPC’s Annual Report 2000 stated, however, that the IPC was ‘not an Ombudsman’, it could not adjudicate on individual cases, but it was ‘anxious to learn about general areas of concern’ (p. 2).

183IRWP Review, p. 50. 184 Ibid., p. 49.

218 the context of corporate insolvency law

body. The argument for such an institution seems strong in all scenarios of reform, except, perhaps, those involving the setting up of an independent regulatory agency for insolvency which could carry out such functions as might be allocated to an Insolvency Review Board.186

In order to counter the case for an IRB, the existing regulators might have to show that the present structure provides sufficient public oversight into the profession. It might also be necessary to establish that there is, in the insolvency field, no tension between regulatory and representative functions as is allegedly encountered in legal services regulation. That said, it can be noted that concerns about complaints and fairness have not been shown to be as acute in the insolvency arena as in the legal services field and, accordingly, there may be a lesser onus to improve external supervision.

A fifth proposal for reform is precautionary rather than remedial in nature and stems from the Select Committee on Social Security’s report of 1993 on the work of the Maxwell insolvency practitioners.187 The suggestion is that there should be a system of independent monitoring of the progress of all insolvencies over a certain value. When originally made, the proposal met with a cool response from the Conservative Government,188 which argued that the task of monitoring insolvency processes should be left with creditors since it was their interests that were paramount; that it was unclear that independent monitoring would add significantly to creditors’ efforts; and that the Government was not disposed to increase the costs associated with insolvency by instituting additional regulation. The counter-view, however, is that creditors cannot be assumed always to be sufficiently well informed, expert and well placed to be entrusted with protecting public and private interests in insolvency processes and that, even if creditors were well informed, expert and well placed, their commitment to protecting the broad public, as opposed to their own private, interests could by no means be taken for granted. Such involvement of the public interest is likely to occur in very large cases of insolvency – as the Maxwell episode demonstrated – and there seems a strong case for allocating a monitoring task in these cases to an Insolvency Ombudsman or an Insolvency Review Board, as discussed below.

To summarise, there are a number of ways in which the accountability of IPs might be improved. Persuasive arguments, for instance, point towards

186On the case for an independent regulatory agency to replace the RPBs and the IS, see Finch, ‘Insolvency Practitioners’, pp. 343–4.

187See Justice, Insolvency Law, p. 8.

188For the Government response to the Report see Cm 2415, 1993.

the increased external scrutiny that an Ombudsman or Insolvency Review Board would bring. The case for radical institutional reform in the shape of a new regulatory agency, a new discrete profession or an expanded and exclusive role for the IS, seems, in contrast, not to be made out.

Accountability can also be developed through open and accessible processes. An important question, therefore, is whether the procedures adopted by IPs are transparent and amenable to inputs from affected parties. Those procedures will be dealt with in later chapters and, accordingly, will not be reviewed here. What should be considered at this point, however, is whether IPs are, because of their institutional make-up, predisposed to encourage or obstruct accessibility and transparency. On this point it can be argued that professionals, at least when they act for a client, tend to put client interests before accessibility or transparency, and, in doing so, will rapidly take refuge behind professional status, knowledge and expertise. When IPs act as receivers for debenture holders, for instance, there is evidence that they are slow to volunteer information to other parties (who might reduce the insolvency fund available for the client or for fee payment) and that they may exploit their positions or expertise and knowledge by deliberately ‘muddying the waters’.189 Within the different context of liquidation – where the IP owes duties to all creditors – there tends to be a relatively greater degree of openness and willingness to impart information.190 Even in liquidation procedures, however, institutional factors may lead to a lack of transparency and poor access. Thus, it has been argued that IPs have been strongly concerned, in the 1980s and 1990s, to build up their professional status and that, if creditors’ meetings in insolvent liquidation are observed: ‘What is revealed is that IPs, as an emerging professional group, use the meeting space to establish, within their own group, power and territory and that creditors, in whose interests the meeting is being held, are, in fact, marginalised and relegated to the role of audience.’191 Trade creditors, it is argued, are likely to be particularly disadvantaged as IPs tend, at such meetings, to direct their comments

189See Wheeler, Reservation of Title Clauses, p. 107; see also ibid., pp. 65, 89–90. Again note must be taken of the Enterprise Act 2002 and the substantial replacement of administrative receivership with administration – the collective orientation of which might be expected to shift IPs towards a more inclusive approach to their functions than is seen in their stances as portrayed in Wheeler’s work.

190Ibid., p. 76.

191S. Wheeler, ‘Empty Rhetoric and Empty Promises: The Creditors’ Meeting’ (1994) 21

Journal of Law and Society 350, 351.