Under-resourcing risks undermining stakeholder confidence in Insolvency Service

• Report: The Insolvency Service
• Inquiry: The Insolvency Service
• Business, Skills and Innovation Committee

The conclusions and recommendations contained within the report include:
(Quotes from the Chairman of the Business, Innovation and Skills Select Committee, Adrian Bailey MP, are in quotation marks.)

Impact of budgetary and staffing costs on the Investigations Unit

• Resource constraints have had an impact on the investigatory and enforcement regime.  We remain concerned that this area of activity remains under resourced.  [para 61]
• Any dilution of the enforcement activity would send the wrong message to delinquent directors.  We recommend the Department provides the Insolvency Service with sufficient, and if necessary, additional funding to disqualify or sanction all directors found to be guilty of misconduct. [para 62]
• We do not accept that public perception of resource pressures is the prime reason for the Service to miss its targets for stakeholder confidence in this area.  The Service must demonstrate that it has a strategy for promoting the success of the investigatory and enforcement regime so that confidence in it can be better measured.  [para 48]
• Without an increase in resources the investigations unit will be unable to increase the number of cases it can prosecute which will further undermine stakeholder confidence.  [para 110]

"The Insolvency Service must demonstrate it has a strategy for improving the worryingly low levels of stakeholder confidence.  We expect it to do so in response to this Report.

The aim must be to disqualify or sanction all directors found guilty of misconduct, and the funding necessary to achieve this should be provided. 

Any dilution of enforcement activity sends completely the wrong message."

On reductions to the workforce of the Insolvency Service

• There is a risk that further reductions in annual running costs and staff may put undue pressure on the Insolvency Service to deliver.  It will have to prove to us that it is sufficiently robust to deal with any potential increase in insolvency casework.  [para 21]

"The high level of service maintained by staff is a testament to them.  Good staff are not a substitute for adequate resource, however.  The Insolvency Service has the first; it must now prove it has the second."

On the funding model of the Official Receiver’s Office

• It is clear from the evidence that the fee-generated income model for the Official Receiver Service is unreliable in the current economic climate.  The Insolvency Service and the Department for Business, Innovation and Skills should look at alternative funding models that are sustainable and not wholly reliant on unpredictable levels of casework and asset values.  [para 40]

"The income model for the Official Receiver Service is not fit for purpose – this is clear from the evidence we received.  The Department and Service must now come up with a model that is."

On pre-pack administrations

• Issues remain with pre-pack administration, which need to be addressed.  Greater transparency, higher levels of compliance with Statement of Insolvency Practice 16 and a stricter regime of sanctions are needed.  [para 112]
• The Insolvency Service is committed to continue to monitor SIP 16 compliance, but to make this effective, non-compliance needs to be followed through with stronger penalties.  [para 80]
• We recommend the Insolvency Service amend its monitoring processes to include feedback to each insolvency practitioner and their regulatory body where SIP 16 reports have been judged to be non-compliant.  We further recommend that the criteria by which SIP 16 reports are judged should be published alongside the guidance. [para 81]

"Pre-pack administrations continue to cause concern.  Greater transparency, higher levels of compliance, and a stricter regime of sanctions are needed."

On administration fees for bankruptcy cases

• Given the level of debt relief they can receive, it would not be unreasonable to increase the £525 upfront fee that individual debtor bankrupts have to pay.  The fee should not necessarily be required to be paid up front but could be staggered along similar lines as payments to debt management companies [para 43]

"The Insolvency Service suggested it is reasonable to expect an individual receiving £30,000 debt relief to pay more than a £535 fee.  We agree.  We also agree that it should be possible for the fee to be staggered."

On the regulation of insolvency practitioners

• We welcome the news that the regulators and the insolvency industry have been working together to create common regulatory standards across the profession.  The creation of a single gateway for complaints, common standards and a common appeals process would be an important step in this regard.  [para 97]
• A simplified complaints system could go some way to providing a clearer picture of the work of the insolvency practitioners.  The Service should be required to publish an annual report that charts progress in this area.  [para 98]
• More needs to be done to educate the public and creditors about the fee-setting regime for insolvency practitioners.  [para 107]

"The work of Insolvency Practitioners takes place in difficult circumstances.  Common standards and a simplified complaints system can help provide a clearer picture and a deeper understanding of this work."