Stephen Hunt, Senior Partner at Griffins, comments on the current insolvency market:

“Following the recent coverage in the Sunday Times and More 4 news, I think that the voice of creditors should be sought in how the insolvency profession reforms itself.

“Over the last decade or so I have been involved in a number of high profile (and not so well-known thanks to Tomlin orders) cases involving the misconduct of insolvency practitioners.  This work has led me to examine in great detail, areas of our work and legislation that most of us do not consider.  My recent work on Clydesdale v Smailes has looked hard at what an IP does in a pre-pack and where the risks lie for all concerned.  This year I have also been appointed following the failure of four separate insolvency firms where the IP has lost his licence.  2010 appears to contain many more challenging investigations into the conduct of insolvency practitioners.

“There are a number of areas that we as a profession need to address.

1. Unlimited time resolutions.  These do not exist in any other trade or profession and will not last.  It also causes IP’s to slip into bad habits by not maintaining a relationship with those in whose interest they act.  It is not enough to say that we do a good job or that sometimes we do not get paid in full.  Our reputation is damaged by the way in which our interest in the creditors wanes the moment that they have agreed the resolution.  In my view a resolution ought to carry a monetary limit to be valid.  Once the limit was reached, then the IP ought to be forced to seek a further resolution. 
2. Insurance and Bond claims.  In all bar one case I have dealt with in the last decade, whether the IP had PII cover was a major issue.  PII insurers drop their client the moment a claim comes in and often I have played a minor role it what becomes a major battle between IP and insurer.  Aside from the acute distress that this causes the IP who thought he was covered, this is not a satisfactory way to protect the public. Similarly, bond cover creates the illusion of protection from fraud but this is far from the case.  The value of a general bond has not increased in 23 years and should be in excess of £5m to be fit for purpose. Equally the rules for setting a bond and ensuring a bond is taken out simply do not consider what happens when a claim is made.  This lack of protection puts our status as a profession in grave danger.
3. Regulation.  It was shocking to me when I realised the limitations that our regulators have to work under.  Our work in dealing with legal issues, ethics and handling funds is closer to a specialist lawyer than an accountant, yet our regulation is based on accountancy principles.  It is a simple fact that we should be regulated as if we were lawyers with the same levels of inspection and with the power for regulators to intervene to protect the public’s funds that we hold.  Our regulators don’t even have the power to appoint a new officeholder if they take away the licence of a delinquent IP.
4. Education.  The original intention of the examination process was to ensure a minimum level of qualification of IPs.  In formulating the exams, it appears that it is envisaged that the candidates would already be qualified in law or accountancy but there is no requirement for this to be the case.  As a result it is possible to just sit three 3-hour papers and become an IP.  An IP may have fewer qualifications than a junior accountant and yet can take on difficult work with a minimum of experience.  We need to consider examinations structured over years where every aspect of ethics, accountancy and law is tested.  If the candidate is already qualified, then some papers might be opted out, but this should be our minimum.

“I would welcome the views of creditors on these points.  What are your experiences of IPs and where do you believe we need to improve?”

If you would like to respond to Stephen Hunt, please email him at stephen.hunt@griffins.net