Friday, October 28, 2016
Copy of email exchange between HMRC and The Insolvency Service
This is a copy of an email between HMRC and the Insolvency Service, as redacted by The Insolvency Service, before they released it to us in response to our Freedom of Information Act request. We have commented about this in the article above.
Thursday, October 20, 2016
ACCA teams up with the IPA – singing in harmony, or trouble in paradise?
The following extract comes from an email that ACCA issued to its insolvency licence holders today:
“The work of IPs is highly specialised and, in the last few years, the Insolvency Service (IS) has sought to bring about a high degree of standardisation across the Recognised Professional Bodies (RPBs) through the Memorandum of Understanding, Principles for Monitoring, Complaints Gateway and the Common Disciplinary Sanctions Guidance. In addition, recent inspections by IS indicate that it is seeking further standardisation in the licensing, monitoring and complaints-handling processes across the RPBs.
ACCA’s regulatory arrangements go beyond insolvency and further standardisation of regulatory processes by IS is likely to require ACCA to develop bespoke arrangements for the regulation and discipline of IPs. A change which may be suitable for the regulation of IPs may not necessarily be suitable for the wider regulated ACCA member population. This would mean running two separate regulatory and disciplinary systems, which adds complexity to ACCA’s regulatory arrangements.
The IPA is the specialist insolvency regulator amongst the Recognised Professional Bodies (RPBs), and currently licenses 600 IPs across the UK. It also provides insolvency support services to its IPs, such as a handbook, helpline, and CPD events with a regulatory slant (including two annual conferences, practical insolvency and refresher courses, and a series of regional roadshows) – aimed at ensuring that IPs keep abreast of and are well-equipped to meet required regulatory standards.
The collaboration will therefore enable ACCA to consolidate its regulatory arrangements for IPs with those of IPA, which in turn will ensure ACCA is able to meet its obligations as a RPB and regulate its IPs in an efficient and effective way in line with IS’s requirements.
Through the collaboration, the regulation of ACCA IPs will be undertaken by IPA, and will cover:
• licensing, save that initial eligibility for insolvency authorisation will be undertaken by ACCA;
• monitoring, including regulatory action following IPA’s procedures; and
• complaints and discipline, including referral of ACCA IPs to IPA’s disciplinary committees.
ACCA will exercise appropriate oversight of the activities undertaken on its behalf and will continue to keep under review IPA’s regulatory arrangements for licensing, monitoring and complaints and discipline to ensure they are consistent with the Memorandum of Understanding, Principles for Monitoring and Memorandum of Understanding for the Complaints Gateway.
The collaboration will also see four ACCA employees involved in insolvency monitoring and complaints-handling transferring to IPA, which will allow for a degree of continuity.
The new arrangements will come into effect on 1 January 2017.”
It is up to ACCA to decide how to react to the Insolvency Service’s demands for harmonised regulation, but at the same time we do wonder if a unilateral switch to what is effectively IPA regulation will necessarily be what their IP members want. Ignoring the technicality of the ACCA making the initial licensing eligibility criteria at the start of the year, we think, without doing the maths in detail, that this will effectively give the IPA as many IPs to regulate as ICAEW, or as near as makes no difference and, with apologies to ICAS and CARB, effectively leaves the profession with two regulators.
We look forward to seeing how the ACCA monitors, who come from a very different regulatory culture, fit into the IPA and what impact this has, not only on the ACCA IPs, but also on the IPA monitoring of its own membership.
One point that does need to be clarified for ACCA IPs sooner rather than later, is how this impacts on their regulation under the anti money laundering (AML) supervision regime. Firms that provide insolvency services have to be supervised for compliance by HMRC or by one of the specified professional bodies. Presumably for those ACCA IPs who are also ACCA members they will continue to be monitored and supervised by the ACCA for AML purposes and it will be done as part of the Practice Assurance regime, on the assumption that they will continue to be caught under that regime. This could mean that ACCA IPs have two regulators, one for their insolvency work and one in respect of their AML obligations. In addition, ACCA licensed IPs who are not ACCA members need to know whether they fall within ACCA’s residual regulatory regime, will be regulated by the IPA, or need to apply to HMRC for AML supervision.
To us, this looks like the first step towards ACCA dropping out of insolvency regulation. Many will see this as a positive move towards fewer regulators. We wonder how the affected IPs, who don’t appear to have been consulted on this, will react.
Wednesday, October 19, 2016
The Insolvency Service tell us nothing has changed, but that was not even what we asked!
This is the first of two articles leading on from our Blog post of 5 August, in which we finally said what everyone has been thinking about the Insolvency Service for years. In that article, apart from recommending that the Insolvency Service should be deconstructed and scattered across Government departments to reduce the self-interest threats that it has clearly succumbed to, we also explained that we had made a Freedom of Information Act request. That request was in two parts and this article deals with the first part. Part two will follow in a few days, because our blood pressure could not handle dealing with it all at once.
Although this article only deals with the Insolvency Service’s response to the first part of our request, we will start with the full text of our request:
“It has come to our attention that the Insolvency Service may have made a policy decision to compete directly with insolvency practitioners for appointments and may be considering exerting influence over HMRC to discourage the appointment of insolvency practitioners as trustees and liquidators. We believe that such action would, if true, conflict with the Insolvency Service’s role as policy maker and regulator of regulators for the profession. We think that the Insolvency Service’s actions should be transparent and for that reason we request the following information.
1) Correspondence, including letters, memoranda and file notes, whether in electronic or hard copy, relating to the Insolvency Service policy on Official Receivers remaining in office as trustee or liquidator instead of appointing an insolvency practitioner, and as such acting in competition with insolvency practitioners. This should exclude information that is already publicly available in the technical manual or Dear IP, but should include management minutes and other documents identifying those responsible for any decisions.
2) Correspondence, including letters, memoranda and file notes, whether in electronic or hard copy, relating to discussions with, or approaches made, or to be made, to HMRC or other government departments, with a view to seeking a change in HMRC’s policy of appointing insolvency practitioners in compulsory liquidations and bankruptcies in place of the Official Receiver.
We consider that it would be inappropriate to redact the names of parties at any meetings or in any documents if they were involved in decisions to compete with Insolvency Practitioners, or influence the voting of HMRC, as we consider that any such action would breach the fundamental ethical principles of integrity, objectivity, and confidentiality, and as such, may call into question their fitness and propriety to hold any position of authority in the insolvency profession.”
We received a response on 1 September 2016 that responded to the first part of our request as follows:
“There has been no change of policy by the Insolvency Service leading official receivers to compete directly with insolvency practitioners. Accordingly, the agency does not hold the information you request. The official receiver has a statutory role to act as liquidator or trustee in circumstances where orders are made by the court and in that role to act in the best interest of creditors.
Having said that, guidance to official receivers on the circumstances when it may be appropriate to exercise their power to make requests to the Secretary of State for the appointment of a liquidator or trustee, as you are aware, has recently been reviewed and reissued. Therefore, following section 16 of the FOI Act, in response to your request I have circulated colleagues seeking information which may relate to decisions made during the course of that review which may in turn be relevant to the spirit of your request. In particular, the circumstances, absent a request for appointment from majority creditors, where it may be appropriate for the official receiver to remain as office-holder rather than actively seek an insolvency practitioner appointment.”
On 30 September we received a holding response about further delay, following which, on 7 October, we received a final response. Again, we just quote from the response to the first part of our request:
“To summarise, in July 2016 the agency announced the publication of updated and revised guidance to official receivers on the process of making requests to the Secretary of State for the appointment of insolvency practitioners to replace the official receiver in office as trustee or liquidator. The announcement was given in Dear IP 72 and information publicly available in the Technical Manual (chapter 17) was updated.
As I indicated on 1 September this did not represent a change of policy. The amendments refer to circumstances in which the official receivers will consider exercising their statutory powers to make application to the Secretary of State for the appointment of an IP as liquidator or trustee, rather than holding a first meeting of creditors. The revisions have no effect upon the ability of creditors to participate in, or to requisition, a meeting of creditors.
In response to part one of your request for information, the agency does not hold any information within the scope of your request. Neither does the agency hold information beyond the publicly available information on the circumstances where it may be appropriate for the official receiver to remain as office-holder rather than actively seek an IP appointment.”
Sorry for putting you through all of the detail, but we hope that you will understand why we had to let you see every word. The following two paragraphs set out why we think that there has been a progressive change of policy and we should have been swamped with documentation.
Although the Insolvency Service says that there has been no change, they seem to be forgetting that we both used to work at the Insolvency Service. Although the OR has always been able to act as Trustee or Liquidator and shares the same duty as Insolvency Practitioners, to act in the best interests of creditors, we have seen how that role has changed over the years since we left, and how the pace of that change has accelerated recently. When we were at the Service (Gareth left in 2001 and Bill in 2002), the OR acted, in the main, as Trustee or Liquidator of last resort. As soon as there were enough assets to pass appointments out, either a meeting of creditors was convened or they were put on the rota and handed out to an Insolvency Practitioner. That had started to change as we left, with the development of Regional Trustee Liaison Units, leading to more small asset cases being kept in-house, although blocks of pension related protracted realisation cases were still being handed out on a different rota. Now, with the re-cast guidance to ORs, we are seeing a further attempt by the Insolvency Service to justify retaining appointments in-house, many of which have been rendered uneconomical for an Insolvency Practitioner appointment because of the front-end loading of the recently introduced legislation dealing with the OR’s fees, which was written by the Insolvency Service and brought into force without any prior consultation.
To be honest, after we had sent that request, we realised that the first part of it was too open-ended and we could be looking at an inordinate amount of documentation. There must be internal Insolvency Service meetings, minutes and memoranda, going back to 2007 or earlier, discussing how to manage the staff reductions arising from the projected fall in compulsory cases and how to retain more work in-house instead of handing it out to Insolvency Practitioners. We are sure that plenty of those discussions will have considered the reactions of the IP community, the regulators, and R3. We are equally sure that there must be records of the case number and fee projections completed when deciding how to retain more cases in house and try to justify their retention on “best interest of creditors” grounds. If we had received the documentation, we would have been swamped and we might never have been able to make any meaningful analysis. Instead, by telling us that there has been no change and supplying nothing at all, the Insolvency Service has just confirmed that it lacks the necessary independence to set policy for the insolvency industry and has insufficient integrity to act as the regulator of regulators.
We wanted to know how the Insolvency Service’s policy of retaining cases had come about. We expected to have to analyse the documents to see whether our theory held up; namely that there has been an inappropriate use of the Insolvency Service’s policy making and legislative powers to secure its own funding and justify its own existence. In the absence of any documents, we clearly cannot identify any individuals, or track down the source of the current policy. We had not anticipated that we would simply receive a response denying that there had been any changes, when everyone in the industry can see that they have been retaining more cases as part of a presumably planned campaign. It is like asking who came up with the policy of having so many miles of “managed motorway” on the M25, then receiving the response that the M25 does not exist!
Because the Insolvency Service says it is not happening, we will have to see what evidence is available within the profession. While we understand that you may not wish to put your head above the parapet, our only hope of getting anyone to address a problem that the Insolvency Service says does not exist, is to collect details of cases where they have retained cases when an IP thought they had been nominated by enough creditors. For example, we have heard of one case, where it is alleged, but to date unsubstantiated, that the IP had over 50% of the creditors supporting his request for an appointment, but it is claimed that the OR’s staff rang around the creditors to point out that they did not need an IP. We don’t know exactly how it was phrased, but the IP’s support evaporated and the OR retained the case. R3 are currently engaged in a positive dialogue with Sarah Albon, the Head of the Insolvency Service, about the criteria being applied in respect of SoS appointments. At the Insolvency Live event back in August she indicated that the wishes of creditors are paramount, and that if an IP has the support of more than 50% of the unsecured creditors then they will always be appointed trustee/liquidator by the SoS. She has repeated that in the discussions with R3, but it would assist R3 in their continuing discussions if they could point to any recent examples where IPs are being refused SoS appointments even though they had the support of more than 50% of creditors. If you have any such examples that have arisen in the last couple of months please, either let us have details of the case for us to pass on to R3, or send those examples direct to Graham Rumney at R3.
Although this article only deals with the Insolvency Service’s response to the first part of our request, we will start with the full text of our request:
“It has come to our attention that the Insolvency Service may have made a policy decision to compete directly with insolvency practitioners for appointments and may be considering exerting influence over HMRC to discourage the appointment of insolvency practitioners as trustees and liquidators. We believe that such action would, if true, conflict with the Insolvency Service’s role as policy maker and regulator of regulators for the profession. We think that the Insolvency Service’s actions should be transparent and for that reason we request the following information.
1) Correspondence, including letters, memoranda and file notes, whether in electronic or hard copy, relating to the Insolvency Service policy on Official Receivers remaining in office as trustee or liquidator instead of appointing an insolvency practitioner, and as such acting in competition with insolvency practitioners. This should exclude information that is already publicly available in the technical manual or Dear IP, but should include management minutes and other documents identifying those responsible for any decisions.
2) Correspondence, including letters, memoranda and file notes, whether in electronic or hard copy, relating to discussions with, or approaches made, or to be made, to HMRC or other government departments, with a view to seeking a change in HMRC’s policy of appointing insolvency practitioners in compulsory liquidations and bankruptcies in place of the Official Receiver.
We consider that it would be inappropriate to redact the names of parties at any meetings or in any documents if they were involved in decisions to compete with Insolvency Practitioners, or influence the voting of HMRC, as we consider that any such action would breach the fundamental ethical principles of integrity, objectivity, and confidentiality, and as such, may call into question their fitness and propriety to hold any position of authority in the insolvency profession.”
We received a response on 1 September 2016 that responded to the first part of our request as follows:
“There has been no change of policy by the Insolvency Service leading official receivers to compete directly with insolvency practitioners. Accordingly, the agency does not hold the information you request. The official receiver has a statutory role to act as liquidator or trustee in circumstances where orders are made by the court and in that role to act in the best interest of creditors.
Having said that, guidance to official receivers on the circumstances when it may be appropriate to exercise their power to make requests to the Secretary of State for the appointment of a liquidator or trustee, as you are aware, has recently been reviewed and reissued. Therefore, following section 16 of the FOI Act, in response to your request I have circulated colleagues seeking information which may relate to decisions made during the course of that review which may in turn be relevant to the spirit of your request. In particular, the circumstances, absent a request for appointment from majority creditors, where it may be appropriate for the official receiver to remain as office-holder rather than actively seek an insolvency practitioner appointment.”
On 30 September we received a holding response about further delay, following which, on 7 October, we received a final response. Again, we just quote from the response to the first part of our request:
“To summarise, in July 2016 the agency announced the publication of updated and revised guidance to official receivers on the process of making requests to the Secretary of State for the appointment of insolvency practitioners to replace the official receiver in office as trustee or liquidator. The announcement was given in Dear IP 72 and information publicly available in the Technical Manual (chapter 17) was updated.
As I indicated on 1 September this did not represent a change of policy. The amendments refer to circumstances in which the official receivers will consider exercising their statutory powers to make application to the Secretary of State for the appointment of an IP as liquidator or trustee, rather than holding a first meeting of creditors. The revisions have no effect upon the ability of creditors to participate in, or to requisition, a meeting of creditors.
In response to part one of your request for information, the agency does not hold any information within the scope of your request. Neither does the agency hold information beyond the publicly available information on the circumstances where it may be appropriate for the official receiver to remain as office-holder rather than actively seek an IP appointment.”
Sorry for putting you through all of the detail, but we hope that you will understand why we had to let you see every word. The following two paragraphs set out why we think that there has been a progressive change of policy and we should have been swamped with documentation.
Although the Insolvency Service says that there has been no change, they seem to be forgetting that we both used to work at the Insolvency Service. Although the OR has always been able to act as Trustee or Liquidator and shares the same duty as Insolvency Practitioners, to act in the best interests of creditors, we have seen how that role has changed over the years since we left, and how the pace of that change has accelerated recently. When we were at the Service (Gareth left in 2001 and Bill in 2002), the OR acted, in the main, as Trustee or Liquidator of last resort. As soon as there were enough assets to pass appointments out, either a meeting of creditors was convened or they were put on the rota and handed out to an Insolvency Practitioner. That had started to change as we left, with the development of Regional Trustee Liaison Units, leading to more small asset cases being kept in-house, although blocks of pension related protracted realisation cases were still being handed out on a different rota. Now, with the re-cast guidance to ORs, we are seeing a further attempt by the Insolvency Service to justify retaining appointments in-house, many of which have been rendered uneconomical for an Insolvency Practitioner appointment because of the front-end loading of the recently introduced legislation dealing with the OR’s fees, which was written by the Insolvency Service and brought into force without any prior consultation.
To be honest, after we had sent that request, we realised that the first part of it was too open-ended and we could be looking at an inordinate amount of documentation. There must be internal Insolvency Service meetings, minutes and memoranda, going back to 2007 or earlier, discussing how to manage the staff reductions arising from the projected fall in compulsory cases and how to retain more work in-house instead of handing it out to Insolvency Practitioners. We are sure that plenty of those discussions will have considered the reactions of the IP community, the regulators, and R3. We are equally sure that there must be records of the case number and fee projections completed when deciding how to retain more cases in house and try to justify their retention on “best interest of creditors” grounds. If we had received the documentation, we would have been swamped and we might never have been able to make any meaningful analysis. Instead, by telling us that there has been no change and supplying nothing at all, the Insolvency Service has just confirmed that it lacks the necessary independence to set policy for the insolvency industry and has insufficient integrity to act as the regulator of regulators.
We wanted to know how the Insolvency Service’s policy of retaining cases had come about. We expected to have to analyse the documents to see whether our theory held up; namely that there has been an inappropriate use of the Insolvency Service’s policy making and legislative powers to secure its own funding and justify its own existence. In the absence of any documents, we clearly cannot identify any individuals, or track down the source of the current policy. We had not anticipated that we would simply receive a response denying that there had been any changes, when everyone in the industry can see that they have been retaining more cases as part of a presumably planned campaign. It is like asking who came up with the policy of having so many miles of “managed motorway” on the M25, then receiving the response that the M25 does not exist!
Because the Insolvency Service says it is not happening, we will have to see what evidence is available within the profession. While we understand that you may not wish to put your head above the parapet, our only hope of getting anyone to address a problem that the Insolvency Service says does not exist, is to collect details of cases where they have retained cases when an IP thought they had been nominated by enough creditors. For example, we have heard of one case, where it is alleged, but to date unsubstantiated, that the IP had over 50% of the creditors supporting his request for an appointment, but it is claimed that the OR’s staff rang around the creditors to point out that they did not need an IP. We don’t know exactly how it was phrased, but the IP’s support evaporated and the OR retained the case. R3 are currently engaged in a positive dialogue with Sarah Albon, the Head of the Insolvency Service, about the criteria being applied in respect of SoS appointments. At the Insolvency Live event back in August she indicated that the wishes of creditors are paramount, and that if an IP has the support of more than 50% of the unsecured creditors then they will always be appointed trustee/liquidator by the SoS. She has repeated that in the discussions with R3, but it would assist R3 in their continuing discussions if they could point to any recent examples where IPs are being refused SoS appointments even though they had the support of more than 50% of creditors. If you have any such examples that have arisen in the last couple of months please, either let us have details of the case for us to pass on to R3, or send those examples direct to Graham Rumney at R3.
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