Member Article

Making a business compliant

By John Harlow, managing director, John Harlow Insolvency

As an Insolvency Practitioner (IP), to be asked to pen a few words on compliance issues is a bit like asking James Joyce if he wouldn’t mind trimming his epic Ulysses down to a handy “read on a train journey” paperback. Having been in the job for thirty years now, I have witnessed exponential changes in the regulation of the profession, which over that period has been transformed from being one of the least regulated occupations, to being one of the most.

When I first started in the mid-eighties, anyone could (and did) undertake insolvency work, although in the main it was handled by accountants. In this, the UK differed from Europe, where the work has usually been carried out by lawyers and subject to the strict regulation of that profession. No qualification was required to act as Liquidator or Receiver of a company, or to act as a Trustee in Bankruptcy to an individual. This left appointments open to abuse by less scrupulous individuals and those who were not qualified by one of the accountancy bodies, could not easily be brought to book for their actions. This gave the profession a bad name, a stigma which has been hard to erase notwithstanding the dramatic changes which have come about since.

So it was that the Insolvency Act 1986 was born, an Act which brought about enormous changes in the way IP’s went about their business and introduced a regulatory regime which, in all fairness, was well overdue. Prior to that, the liquidations and receiverships were governed by The Companies Act and bankruptcies by the superannuated Bankruptcy Act of 1914. A preliminary Act in 1985 was a short lived precursor to the transformation and was eventually consolidated into the ’86 Act. This gave everyone the opportunity to learn a new set of section numbers twice in short succession and kept stationery offices busy as precedents had to be updated twice.

The Act introduced a new licensing regime, a formal qualification and a set of exams which had to be passed by anyone new entering into the profession. Some practitioners, who had been undertaking insolvency work for a number of years and had taken a certain number of appointments, were given a licence by the DTI. Everyone else, including me, had to pass the exams before a licence to take appointments was granted by one of the authorising bodies.

Along with this, the Act came with a companion set of Rules as to how the appointments were to be carried out. The Regulatory bodies introduced a series of Statements of Insolvency Practice (SIPs), which were conceived originally as guidance and best practice notes, but later became mandatory. Ethical guidelines were introduced to match those common to the legal profession.

By the mid nineties, Regulatory visits had been introduced, initially on a five year revolving basis. Here an IP’s files could be scrutinised by an inspector, who would then compile a report on all the compliance shortcomings and failures. These dwelt very much on negative factors within a practise and could lead to disciplinary action, undertakings or at worse, the loss of licence. These visits are still the norm, although nowadays they tend to concentrate more on qualitative matters and value for money, as naturally we are all expected to have got our compliance house in order.

The regulatory regime came as something of a culture shock to the profession, but most practitioners felt that it was a necessary and well overdue evil. Firms were forced to address compliance seriously and put in place the sort of checks and balances which had been the norm in the legal profession for decades. It had the partial effect of weeding out the more dubious ‘practitioners’, although many people, who had been in the industry for less than the required period to obtain a licence through relevant experience, found their career paths stultified if they didn’t have the desire or wherewithal to commence a lengthy and expensive period of study.

Over the years, compliance issues have continued to increase, to a point where many consider that the profession is over-regulated. There is always a danger that concentrating on making the files comply with all the rules and regulations may lead to the main point of the job in hand being missed. A well known (and possibly apocryphal) tale from the one time Joint Insolvency Monitoring Unit, had it that on a visit to one practise, the inspector could find no compliance aberrations on a particular case, but did find that the practitioner had forgotten to realise the assets!

All IP practices now have systems in place to ensure that statutory deadlines are met, that the precedents for each procedure comply with the Act, the Rules, the SIPs and a wealth of other statutory instruments. Checklists, diary systems and dedicated insolvency software are now used as a matter of course by practitioners and their staff, a far cry from the happy-go-lucky days pre-1986. Of course all these systems will only be effective if used correctly and consistently, so proper training on their use is essential.

So, is all this regulation a good thing? Well although it is certainly a pain, the answer has to be yes! IP’s now deliver a far better service to creditors and other stakeholders and the external monitoring keeps us all on our toes. Of course this doesn’t stop the powers that be continuing to look into ways of making the profession more accountable and transparent. Further regulatory changes are undoubtedly on the way, especially with regard to the way fees are charged and the constantly vexed position with regard to pre-pack Administrations. A complete revision of the Insolvency Rules is promised soon, so we can all look forward to learning yet another set of numbers!

This was posted in Bdaily's Members' News section by Laura Jones .