Comment on APPG on Fair Business Banking report “Resolving Insolvency: Restoring confidence in the system” dated 14 September 2021.

The APPG on Fair Business Banking report on insolvency published last week contained some quite startling comments on the conduct of Insolvency Practitioners. The foreword to the report narrated that the APPG received evidence of intimidation, deception, dishonesty and even misappropriation of assets by IPs performing their court-appointed functions. The APPG report went onto to suggest that IPs have departed from the core principles of the Insolvency Act and are no longer prioritising the rescue of businesses.

The APPG’s concerns do not match up with our extensive experience of working with IPs in Scotland. In our experience, IPs are mindful that they are officers of the court and have duties to the court and to others in terms of their Code of Ethics. We have certainly never come across examples of intimidation, deception, dishonesty or misappropriation of assets. The APPG’s report recognises that their call for evidence may be somewhat self-selecting in that only those with grievances would come forward. We are keen to stress that our experience does not match up with the evidence submitted to the APPG.

There seems to be a misunderstanding of IPs duties in the APPG report. IPs first and foremost have a duty to the company’s creditors and to maximize any return to creditors. While administrations were introduced with a view to enabling more companies to be rescued rather than being wound up, rescuing a business does not take priority over the interests of creditors. IPs will always give consideration to whether a company in administration can be rescued as a going concern but that is not always possible and in many cases a business rescue would be to the detriment of creditors. In those circumstances, the other outcomes from an administration will be explored such as selling parts of the company’s business or realising its assets.

The APPG have made a number of recommendations including the following:

• A conflict of interests ban on IPs taking appointments where they have personally been involved in pre-appointment work for any party involved in the insolvency case in the two years before the appointment.
• A single regulator of IPs with an ombudsman.
• Placing the Code of Ethics on a statutory footing.
• A database recording the out­comes of administrations.

We are not convinced these recommendations are necessary or would see a significant difference in how the profession functions.  In particular, the proposed conflict of interest ban would likely increase the costs to business who would need to instruct one IP to advise pre-appointment and a second IP for the appointment itself.  There would be a duplication in the time and expense spent by the IPs in getting to grips with the company and its business. IPs already have duties about avoiding conflicts of interest set out in the Code of Practice.  The proposed ban and the associated cost may not be a worthwhile price to pay in order to obtain the perception of  an even greater freedom from conflicts of interest.

The APPG report may cause concern for those considering seeking advice from IP. We are keen to stress that the concerns raised in the report do not match with our experience of dealing with the insolvency profession in Scotland and are happy to discuss any of the issues raised with our clients and contacts.

Should you have any questions please contact:

Steven Jansch by email: sjansch@gilsongray.co.uk or by phone: 0131 516 5361 / 07841 920 100. 

Eilidh MacEwan by email: emacewan@gilsongray.co.uk or by phone: 0131 285 1809 / 07376 192 463.