Insolvency Special Report: means to an end
12 January 2009
3 December 2013
18 March 2014
12 March 2014
21 August 2013
9 April 2014
This month a new ethical code for all licensed insolvency practitioners (IPs) comes into force. The code is based on the five fundamental principles
of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour.
The code also provides specific guidance on issues such as prepackaged administrations, the means of obtaining work, the use of specialist agents, and referral fees. Most IPs are qualified accountants and the code is aligned to a model ethical code adopted by the International Federation of Accountants.
IPs will be expected to take reasonable steps to identify any threats to compliance and its fundamental principles. Breaches of the code may be taken into account by an IP’s authorising body when assessing the IP’s conduct.
The code evaluates the risk areas as being self-interest, self-review, advocacy, familiarity and intimidation. Taking these individually, we may conclude as follows:
Higher fees, for example, may conflict with the best interests of the debtor or creditor to whom you owe a duty. This may be yet another argument for the regulation of unregulated areas in insolvency – such as debt management plans (DMPs), where one sees individuals with no property advised to enter into a DMP for many years when bankruptcy would be better, but perhaps less lucrative to the seller of the DMP and certainly of less positive benefit
to the banks, which rather like them.
Self-interest may, for example, incline one to instruct a certain agent or lawyer on the ‘back-scratching’ principle – but is it the right thing for that case? Beware your recognised professional body (RPB) inspection.
Sometimes it breeds contempt, or the opposite, but either is a threat to your objectivity.
This calls to mind the boys with the baseball bats, who certainly can figure – but is one intimidated by the non-overt but widely perceived threat of a loss of support from any quarter in order to ensure you act a certain way? Will you stay on that panel?
Where, for example, you review a predecessor’s decisions, have a structure in place and be objective. If hands need to be held up, do it. It is your licence, after all.
Not the risk of an IP acting as a litigant in person – and thus having a fool for a lawyer, as the old adage goes – but the risk of shouting your mouth off about certain issues, which then make it difficult for your colleagues to adopt any opposite view even when it is actually objectively appropriate.
These risks do not mean you write a case off. The code suggests possible safeguards you can employ to guard against those risks, but which show you have thought about them and taken steps. If the risk becomes too great, sever the risk area.
The code has been approved by the Joint Insolvency Committee and adopted by all seven of the bodies that authorise and regulate IPs. But will its adoption be consistently applied? It is a long-running debate in the profession as to whether seven RPBs might be too many for that reason, among others. In reality, there is the Institute of Chartered Accountants for England & Wales, Scotland and Ireland respectively, accounting for three of the seven. Then there is the Association of Chartered Certified Accountants and the Law Society for England & Wales and Scotland. Completing the seven is the Institute of Professional Accountants.
Will the new code make a difference?
We might all name firms or individuals (if we wanted to get sued). How many of those people now – solicitors or IPs – are caught, and how many continue to practise, ignoring their professional code at the expense of clients and creditors? It is difficult to truly regulate ethical behaviour. If firms with less than ethical approaches are not caught and punished for any breach of the code, then it becomes a vicious circle, with juniors learning the ways of their seniors and carrying on the tradition.
Will the code stop some of the cases of inflated commissions and ‘back-scratching’? The code is not prescriptive, in the main, and sets out broader principles. However, this does mean that there is an onus on IPs to truly understand the ethical requirements and their spirit and apply them carefully in each case. There will be some who will never change and/or who will merely pay lip service to the code – but we should close in on them and name and shame them. It will be good for a profession that one should be proud to be a part of.
Frances Coulson is head of insolvency at Moon Beever, as well as an R3 (the insolvency trade body) council member and chairman of R3’s smaller practices group.