MPs on the All-Party Parliamentary Group (APPG) on Fair Business Banking have voiced concern over the insolvency profession after an inquiry found evidence of alleged widespread misconduct, saying it has received ‘startling’ evidence about the sector.

Kevin Hollinrake, Co-Chairman of the Parliamentary Group, said that sections of the insolvency industry were “operating in a manner that it is more akin to the Wild West than a developed western economy.” He warned that insolvency practitioners “often prioritise the interests of their bank panel paymasters at the expense of other creditors and shareholders”, describing this as “totally unacceptable” and a “clear breach of their duty of care”. The behaviour “is not being addressed by the membership organisations whose responsibility it is to regulate them.”

The industry is overseen by recognised professional bodies, including the ICAEW and Insolvency Practitioners Association, MPs are calling for an independent regulator with an ombudsman.

Responding to the APPG’s report on insolvency regulation Duncan Swift, Past President of insolvency and restructuring trade body R3 aid “The APPG’s work has restarted debate about the future of insolvency regulation, and how we can improve our already successful and internationally well-regarded regulatory framework. With the Government’s own consultation on the issue due to be published later this year, the APPG’s report is well-timed.”

“However, we were disappointed by elements of the report, which show a lack of understanding of the framework, the difficult circumstances in which the insolvency profession works, and the critical role it plays in rescuing businesses, preserving jobs and creating the confidence to trade and lend by returning money fairly to creditors.”

“Indeed, the UK’s insolvency profession is one of the most regulated in the world, and helps to rescue thousands of businesses and hundreds of thousands of jobs, and returns billions of pounds to creditors every year. Since 2016, it has consistently ranked within the top 14 in the world in the ‘Resolving Insolvency’ section of the World Bank’s ‘Doing Business’ report.”

“Members of the profession are highly qualified, highly regulated individuals whose work often requires them to take on the running of a financially distressed company almost overnight. They take their requirement to comply with the profession’s regulatory framework and its strict Code of Ethics incredibly seriously, and any insolvency practitioner who falls short of the Code of Ethics’ standards can and should be reported to their regulator for investigation.”

“While the framework can be improved, the APPG’s portrayal of it is a partial one. In 2020, out of almost 124,000 personal and corporate insolvency procedures, there were only 371 complaints against IPs referred to regulators – or one complaint in every 334 cases.”

“We welcome any opportunity to identify those improvements, but these need to be considered carefully. For example, the APPG’s call for a single regulator – something we’re not opposed to in principle – would not be a silver bullet solution for concerns about insolvency regulation.”

“There is no guarantee that a single regulator would process disciplinary procedures more rapidly or effectively, while there are big questions about which organisation could take up the role. For example, the government assuming this role could lead to a conflict of interest as it would set insolvency legislation, regulate insolvency practitioners, and then, effectively, compete with those same insolvency practitioners for work – while not being subject to the same regulation itself.”

“We look forward to engaging constructively with the Government’s consultation on this issue, to discuss how we can further improve the regulatory framework for insolvency. It’s important, however, that policy making in this area is evidence-based and relies on facts rather than assertion. That’s the best way to ensure that the optimal outcome is achieved for businesses, the profession and the wider public.”