We cannot help but see a certain Orwellian familiarity in two of the Insolvency Service’s current plans. We have been told that the Government will “seek to introduce a power into law which would enable the introduction of a single regulator”, and also that a similar “reserve power” will be introduced to allow the Insolvency Service to “ban pre-pack sales to connected parties” in administrations if the insolvency profession does not follow the “recommendations” of the Graham pre-pack review. Regular readers of the Blog may have noticed that the more irritated we are with something, the more we revert to “quotation marks”.
Maybe describing these proposals to obtain powers “just in case” as “Orwellian” is going a bit far. That suggests a degree of sinister intent, when in fact, we think that this just a rather sad attempt at threatening a highly regulated profession with the “naughty step”. Before we look at the two specific powers being sought, let us stop briefly to consider the whole concept of reserve powers. What we are being told is that a profession that has been perfectly adequately self-regulated by the combined effort of 7 regulatory bodies, despite some government interference, for almost 30 years, where nearly every office holder is a qualified lawyer or accountant and has also obtained further qualifications via examination and experience, is now so incapable of adapting that the government may have to step in and enforce change. But it goes further; the government thinks that it has to show that it is serious by taking powers allowing it to pass legislation just in case it is needed.
How sad is it that a government is so lacking in authority that it has to stoop to threats to get its way, but more so when in the past the profession has co-operated fully with changing elected governments in the pursuit of their pet agendas and provided continued support and resources to continually improve the insolvency regulatory regime? Even Supernanny tells her clients to only use the naughty step when it is appropriate to do so and not hold it over as some sort of unenforced threat. Two of us at Compliance on Call are parents and although we would never claim to be perfect parents, we do know that saying “If you don’t…, I will….” rarely gets the desired result when dealing with young children. For the government and its Civil Servants to do so to a whole profession is, frankly, insulting.
First, the government is seeking a reserve power to appoint a single regulator. Why? If, as we believe, the current weird system of many regulators currently works well enough, isn’t it enough just to try to refine some of the perceived areas of weakness? Is there any area where the standard of regulation is so poor and the inconsistency so obvious that it appears to beyond the whit of the regulatory bodies to develop a practical solution? And if so, why wasn’t something done ages ago before it got to this stage? In fact, much to the surprise of anyone that comes into contact with the profession, there is little evidence of any inconsistency between regulators and from our well-placed perspective, we see more instances of inconsistency that depend on individual monitors and visit circumstances than we do between regulators. Possibly the only way to ensure uniform treatment really is to impose Orwellian totalitarianism! Of course we don’t think that, not least because the nature of insolvency appointments is that different results may actually be appropriate depending on the unique circumstances of each case. We think that the current system, which has constantly reacted to change and continuously improved standards over the last 28 years, actually works pretty well and is more than capable of further refinement without silly threats from government. If the day arrives when a single regulator is an appropriate solution, it should be done only after proper consultation in the circumstances of the proposed changes, taking full account of the costs and implications, not by triggering some semi-dormant blanket authority. There is a certain irony that the insolvency legislation requires that when a licensed and highly regulated insolvency practitioner wants to exercise some of the more sweeping powers allowed in the insolvency legislation, he has to obtain specific sanction after full disclosure of the circumstances, but an elected government and a department of Civil Servants are somehow deemed to have the knowledge to grab blanket authority to restructure a whole industry off the back of some “just in case” legislation passed on a whim.
The second area is even more inappropriate. The Graham review and every government investigation and research paper produced on the subject consistently says that pre-packs are an appropriate and necessary solution in many cases. Despite constantly moving goalposts the insolvency profession has bent over backwards to meet every criticism and develop improved disclosure and processes to address a variety of unproven allegations by disaffected parties who regret losing money, or are envious of the debt-free entity that enters the market place after the failure, or begrudge the fact that IPs actually have the temerity to earn fees from sorting out the mess. The Graham review, which we are a bit less positive about than some commentators, as can be seen from our earlier article, made 6 recommendations. Whether we agree with them or not, if the Insolvency Service had just said “let it be”, the profession would have rallied around and implemented what they could without the need for threats. A suitably worded message at a meeting of the JIC and an article in Dear IP would have been just as effective as any reserve power. If any of the recommendations happen to turn out to be barking mad and incapable of implementation, which we will only find out in time, then the government is seeking the power to ban the very tool that it says is appropriate and necessary. Now, if someone in government has taken against pre-packs, feels that they should be banned and takes a policy decision to ban them, then so be it, but banning a perfectly suitable, proven solution just because the profession cannot find anyone to put their neck in the hangman’s noose of the pre-pack opinion pool is just daft. Talk about throwing the baby out with the bath water!
So, in the nature of Don Quixote tilting at windmills, or King Cnut trying to hold back the oceans, we cordially invite the government to stop pratting about. Sadly they probably cannot now do so without losing too much face, so that they will just carry on regardless and refuse to accept that they have messed up. If the regulators cannot achieve the necessary improvements, whether in the regulation of the profession generally, or in the implementation of the Graham review recommendations in particular, then they can take appropriate legislative action if they want, but they don’t need to threaten us with the naughty step! We encourage the government to have the guts to abandon the pursuit of reserve powers and wait to see what happens before deciding on what would be an appropriate response.
