Rescue Remedies Q&A
Eileen Maclean, a director of Insolvency Support Services, was interviewed by business journalist Ian Harper for his Rescue Remedies feature on the Insolvency and Corporate Recovery market in the latest issue of CA Magazine from ICAS. Here are Ian’s questions and Eileen’s answers.
IH: What would insolvency practitioners like to see Anna Soubry (the newly appointed minister with responsibility for UK/England & Wales insolvency policy) tackle as a matter of priority?
EM: Single issue licensing – we need to know what is happening and when. Personally I think that this is a positive contribution to the insolvency regime, although I appreciate many do not, but the current uncertainty as to its introduction and its operation need to be addressed. We have an opportunity to work together to create change for the benefit of creditors, debtors, companies and consumers, to ensure that we have a licensing regime fit for purpose and that all stakeholders support.
IH: What are insolvency practitioners keen for Anna Soubry not to change?
EM: I think that a period of consolidation is in order. We have had change on so many fronts that a period of reflection and feedback on the various changes would be welcome! The one exception is a proposed consultation on employee claims.
IH: Following the Citylink collapse, MPs have called for tougher sanctions on company directors to protect staff and creditors. Do you think tougher sanctions are appropriate or necessary, and what changes would you like to see implemented as a result of this collapse?
EM: I would welcome a period of consultation on employees’ positions in insolvency. A lot of the criticism in City Link came about because self-employed contractors lost out on the administration of the company, and the self-employed are not automatically classed as employees. Given the changing nature of work in the 21st century, i.e there are more self-employed contractors in many sectors these days (whereas in the past it might have been more limited to oil & gas, IT etc). I think that there is a debate around the changing nature of work and workforce composition, and there is perhaps an argument for widening the definition of “employee” on insolvency. However, any such changes would impact on employment law generally, so this would need to be carefully considered.
There are various sanctions against directors available to the IP and set out within the existing insolvency legislation (Insolvency Act 1986) (e.g. recovery from directors personally via actions for misfeasance, wrongful and fraudulent trading) as well as the ability to limit directors’ activities via the directors’ disqualification regime. However, there are often few assets in a case to fund litigation, or no appetite among creditors to finance an investigation or recovery action with no guaranteed outcome. Rather than bring in tougher sanctions, perhaps setting up some form of funding scheme that would allow IPs to run the action with sufficient support (particularly since the IP exemption for 3rd party funding is due to be reviewed again)? Regarding the disqualification regime, it needs to be properly funded. There is no point bringing in ever more legislation to address any perceived problem, without equivalent funding. That’s just ticking the “policy achieved” box.
IH: How is the new regime on ‘prepacks’ (following the report by Teresa Graham) working out in practice? From the experience to date, what are the good points about the new regime and what are the bad ones?
EM: Not hearing many grumbles or comment on the grapevine. The perception is that this another “policy achieved” tick box exercise. Perhaps of more relevance to creditors generally is the “phoenix” operation that springs up, and as part of the Disqualification regime, or indeed HMRC could have a wider role to play in policing the directors’ business activities post insolvency. But that requires funding. And a more joined up approach from government generally.
IH: Following the announcement by Business Minister Jo Swinson on 3 March, insolvency practitioners in England & Wales are now required to provide upfront estimates of the cost of working on insolvency cases, so ending the uncertainty of unlimited hourly charges. What has the effect of this been in practice?
EM: In Scotland, we have always had a more transparent approach to fee setting and approval. We do not currently have equivalent corporate provisions. We do have them in our PTD regime, and it has allowed creditors to see, and if necessary, to challenge the expected costs at the outset. However, we have to find a balance, and creditors constantly need to be reminded that not all of our impact is measured in dividend returns: for example, processing employee claims, ensuring third party assets are returned safely, credit insurance claims are facilitated.
IH: Regarding insolvency practice north of the border, what do you believe are the pressing issues that need to be resolved in Scotland?
EM: We need clarity and careful consideration of the Corporate Insolvency Rules. While we have always had separate Rules in recognition of our distinct jurisdiction, we are now at very disparate legislative positions. Given the work and time taken to get the English rules to their current position, I would not want to see a quick “cut and paste” into Scottish legislation. We also need our policy makers north and south of the border to be quite clear about their intentions, and again, that’s a debate we should all be part of.
IH: The number of company directors disqualified by Insolvency Service rose by 83% to 119 in the past year. Jeremy Willmont, head of insolvency at accountancy group Moore Stephens, was quoted by the Daily Mail as saying: “While it’s great to see more criminal directors banned from running firms, there’s a feeling a number are slipping through the net due to lack of resources at the Insolvency Service.” What is your view on this – do you agree with Mr. Willmont that the Insolvency Service is under resourced?
EM: I totally agree. The Government needs to be clear on its priorities and policies. If public and SME protection is an important aspect of the UK business environment, and a stated government policy, then a robust, properly funded disqualification regime has an important role to play in policing UK commercial activity. Without it, and without equivalent supporting powers to investigate and curb commercially dangerous behaviour, any risk in business transfers to the customer or the creditor, with no responsibility for good behaviour required of directors.
IH: What other issues would you like to raise regarding the current state of the insolvency regime in the UK?
EM: We , media, IPs and government, have a role to play in making sure that our contribution to the economy, and the complexities of what do, are understood and valued.
CA Magazine’s Insolvency and Corporate Recovery feature is included in the September 2015 issue.
