Thursday, October 17, 2013

Checking disclosure made by introducers

You will be aware that there have recently been some high profile cases involving businesses that introduce work to IPs, with action being taken against them. The Insolvency Service has wound up various companies in the public interest, not just those run by a well-known former IP, and the Advertising Standards Authority (ASA) have also take action at the instigation of R3. The fall-out from this action is just starting, and as is the way with these things, it will affect all IPs.

I was at the ICAEW Roadshow in Birmingham recently and Allison Broad made it clear that they will be requiring IPs to provide details of all sources of work as part of their pre-visit information gathering. The ICAEW will then be reviewing the web-sites of both the IP’s themselves and of their sources of work to ensure that they are complying with paragraph 400.65 of the Insolvency Code of Ethics and guidance issued by both the Office of Fair Trading (OFT) and the ASA. Presumably the other regulators will be doing something similar given that this is such a hot topic and significant risk area for the profession as a whole.

Paragraph 400.65 of the Insolvency Code of Ethics states that “when considering whether to accept an insolvency appointment an Insolvency Practitioner should satisfy himself that any advertising or other form of marketing pursuant to which the insolvency appointment may have been obtained is or has been:
(a) Fair and not misleading.
(b) Avoids unsubstantiated or disparaging statements.
(c) Complies with relevant codes of practice and guidance in relation to advertising.”

The ASA’s general rules state the advertising, which includes websites, must be responsible, must not mislead, or offend. Further guidance on the ASA and the various codes of advertising can be found here, whilst guidance from the OFT can be found here.

As a result, you need to both consider the web-site, advertising and other marketing materials of your own practice and all your referral sources to ensure that they comply with these requirements, and evidence that you have checked them. Whilst you need to do that for all referral sources it is likely that there will be less of a problem where the referral source is an accountancy practice regulated by the ICAEW, ACCA, CAI or ICAS since they are already required to comply with such provisions under the IESBA Code of Ethics, or a firm of solicitors subject to similar regulation by the Solicitors Regulation Authority (SRA), or a firm of IPs regulated by the IPA. As a result, you should concentrate in the first instance on any sources of work that are not accountants, solicitors, or other IPs.

In addition to undertaking an initial check, you will also need to keep the web-site etc under regular review. I would suggest taking a risk based approach to such checks. Where the referral source is a firm of IPs, regulated accountants or solicitors then you could probably have no more than an annual check, but for other referral sources then you would need a more frequent check, say quarterly or 6 monthly. You might even check them more frequently if you become aware of a potential issue with an introducer’s web-site or publicity, say because of a comment made by an insolvent you are dealing with.

You will also need to undertake such checks in respect of any new referral sources, and do so before you are appointed to the first case they refer to you. To assist our clients in this we are inserting a prompt in our pro forma ethics checklists to remind them to undertake such checks.

Finally, we have previously undertaken reviews of web-sites to see if they meet the OFT’s requirements, so if you need some assistance in undertaking such checks please contact Bill ( to discuss how we can assist you.