The Insolvency Service ("IS") has published a consultation on proposed reform to the regulation of insolvency practitioners. The consultation responds to various recommendations made last year by the Office of Fair Trading ("OFT") in their study entitled, "The Market for Corporate Insolvency Practitioners".
The OFT's 2010 study assessed the efficacy of the insolvency regime in protecting the interests of its various stakeholders. In this regard, the OFT found that, while the current regime operated adequately in most cases, the position of unsecured creditors could be much improved. The study identified that unsecured creditors were often left in a disproportionately weak position as regards the influence and control they were able to assert over the insolvency process.
Various proposals were put forward by the OFT to remedy this imbalance - most of which have been supported by the IS in the current consultation. Indeed, the IS has carried forward the three main recommendations of the OFT for consultation - namely:
- To establish an independent insolvency practitioners complaints body - with the current procedure being considered fragmented and unnecessarily prohibitive.
- To set clearer objectives for the regulatory regime - currently, it is considered that the complex nature of the insolvency regime has led to weakness.
- To make detailed amendments to particular regulations - including proposals to: change the operation and level of the "prescribed part" that is set aside for unsecured creditors; ensure the transparency of insolvency practitioners' remuneration; and encourage the use of CVLs where they may provide a more effective insolvency procedure.
The timing of this proposed reform is important, with the current economic downturn having led to increased scrutiny of the insolvency regime and, indeed, of those who operate it. However, both the OFT and the IS believe that increased confidence in the insolvency regime could have benefits not only for those directly affected by insolvency proceedings, but also for the economy as a whole.
The IS consultation is open for response until 6 May 2011 and can be accessed by clicking here.
The OFT 2010 study can be accessed by clicking here.