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Insolvency Practitioners

Summary

A person may only act as an insolvency practitioner (IP) if he is a qualified individual. Acting as an IP includes acting as a liquidator, trustee, administrator or supervisor/nominee in relation to a company, partnership or individual. It is a criminal offence to so act without being qualified.

An IP may be authorised to act:

* by being regulated by a Recognised Professional Body; or

* by direct authorisation by the Secretary of State.

Further information and IP directory

Further information is available from The Insolvency Service.

There is a government online IP directory which enables searches for Insolvency Practitioners in a particular area. The directory contains information on Insolvency Practitioners who have agreed to include their details. It is not a complete list of all IPs in the UK.

The Association of Business Recovery Professionals provide a Find a Practitioner option which allows individuals or firms to obtain details of a practitioner corresponding to a specified name or area. It is not clear whether all authorised IPs.

Introduction

Before 1986 there was no statutory regulation of Insolvency Practitioners. The Insolvency Practitioners Association (IPA) was formed in 1961 as a discussion group of accountants specialising in insolvency. It developed to become the leading professional body for the insolvency profession. It was incorporated under its present name in 1973.

During the 1970s and early 1980s, as insolvencies increased and more became involved in being appointed as trustees and liquidators, concerns emerged about the activities of a small number of them and their impact on the profession and its reputation. The then Labour Government appointed the Review Committee on Insolvency Law and Practice, chaired by Sir Kenneth Cork, in order to address the concerns and make a report.

The 1982 Report of the Review Committee on Insolvency Law and Practice ( the Cork Report) [(1982) Cmnd 8558] was a seminal study on UK insolvency law and practice. It contained a set of recommendations for the modernisation and reform of insolvency law and practice. The Cork Report was followed by a White Paper in 1984 [A Revised Framework for Insolvency Law (1984) Cmnd 9175] which led ultimately to the passing of the Insolvency Act 1986.

The 1866 Act (IA) contained among other things the provisions regulating for the first time the profession of Insolvency Practitioner [Insolvency Act 1986 Part XIII]. The IA and regulations made under it are designed to ensure the competence, integrity and professional independence of insolvency practitioners.

Acting as an Insolvency Practitioner

A person acts as an insolvency practitioner by acting:

* in relation to a company, as its liquidator, provisional liquidator, administrator or administrative receiver, or where a voluntary arrangement in relation to the company is proposed or approved, as nominee or supervisor;

* in relation to an individual, as his trustee in bankruptcy or interim receiver of his property or as permanent or interim trustee in the sequestration of his estate; or as trustee under a deed which is a deed of arrangement made for the benefit of his creditors or, in Scotland, a trust deed for his creditor; or where a voluntary arrangement in relation to the individual is proposed or approved, as nominee or supervisor; in the case of a deceased individual to the administration of whose estate this section applies by virtue of an order under IA s.421;

* in relation to a partnership, as its liquidator, provisional liquidator or administrator, or as trustee of the partnership.

A receiver who is not an administrative receiver e.g. a receiver under a fixed charge or a Law of Property Act receiver is not required to be a qualified insolvency practitioner before he can act.

Authorisation to act as an IP

An IP may be authorised to act:

* by being regulated by a Recognised Professional Body (RPB); or

* by direct authorisation by the Secretary of State.

Joint Insolvency Examination Board

Any person wishing to be authorised as an insolvency practitioner must have passed the Joint Insolvency Examination.

Eligible applicants from member states of the European Economic Area need to comply with the requirements of The European Communities (Recognition of Professional Qualifications) Regulations 2007.

Recognised professional body

The Secretary of State (i.e. in practice the Business Secretary) has power to grant recognition to a professional body and allow it, in turn, to authorise individuals to act as insolvency practitioners. A recognised professional body (RPB) must incorporate in its rules appropriate provisions to ensure that those who are authorised by it to act as IPs are suitably qualified.

The Insolvency Practitioners (Recognised Professional Bodies) Order 1986 granted RPB status to the following bodies:

•The Chartered Association of Certified Accountants;

•The Institute of Chartered Accountants in England and Wales;

•The Institute of Chartered Accountants of Scotland;

•Chartered Accountants Ireland (formerly known as the Institute of Chartered Accountants in Ireland) (i);

•Insolvency Practitioners Association;

•The Law Society of England and Wales (ii)

•The Law Society of Scotland (iii).

The Insolvency Practitioners Association (IPA) is the leading RPB authorising IPs and is the only recognised body whose members are solely involved in insolvency practice.

Following the introduction of authorisations, the IPA was instrumental in forming the Society of Practitioners of Insolvency as a separate organisation to co-ordinate across the profession the representation of insolvency practitioners, training and technical guidance and advice. The Society was subsequently renamed the Association of Business Recovery Professionals (known as R3 – Rescue Recovery and Renewal) to reflect the increasing use of both formal and informal reorganisation and turnaround procedures for failing businesses.

Notes:

(i) Chartered Accountants Ireland later transferred their regulatory and disciplinary functions to the Chartered Accountants Regulatory Board.

(ii) The Law Society of England and Wales later transferred their regulatory and disciplinary functions to the Solicitors Regulatory.

(iii) The Law Society of Scotland ceased to be an RPB in December 2015.

Bonding

An individual may not act as an IP unless there is in force security for the proper performance of his functions which meets the prescribed requirements [The Insolvency Practitioners Regulations 2005].

The security (known as a ‘bond’) must be approved by the Secretary of State and makes the surety (the insurers who issue the bond) jointly liable with the IP for losses in relation to the insolvent caused by the fraud or dishonesty of the IP (whether alone or in collusion), or the fraud or dishonesty of any person committed with the connivance of the IP.

The initial requirement of qualification is for an enabling bond to provide general cover up to an amount of £250,000 which will remain in force for a period of 12 months. The enabling bond must be lodged  with the IP’s RPB and may be called upon if the IP fails to obtain a ‘specific penalty’ or the specific penalty obtained is insufficient. Specific penalty cover is required in respect of each appointment taken. Where the estimated assets are less than £5,000, the specific security is assessed at £5,000 and where they exceed £5 million, the specific security will be assessed at £5 million.

Disqualification to act as an IP

A individual is disqualified from acting at any time as an IP if at that time:

•He has been adjudged bankrupt and has not been discharged;

•He has a moratorium period under a debt relief order;

•He is subject to a disqualification order made or a disqualification undertaking accepted under the Company Directors Disqualification Act 1986;

•He lacks capacity (within the meaning of the Mental Capacity Act 2005) to act as an insolvency practitioner;

•He has a bankruptcy restrictions order or a debt relief restrictions order in force.

Enforcement

Criminal enforcement: an individual who acts as an insolvency practitioner in relation to a company or individual at any time when he is not qualified to do so is liable to imprisonment or a fine, or both.

[Page created: 07/01/2016]

 

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