My Lords, I thank the noble Baroness, Lady Hayter, for moving her amendment
and speaking to Clause 18. When I came into the Grand Committee—I think that it was during the debate on Amendment 10—I saw the Benches absolutely crowded and I thought, “I didn’t realise insolvency practitioners commanded such interest, not even on a Sunday”.
The noble Baroness made some important points, which I will certainly seek to address, although I think that I will disappoint her, because neither do I feel able to indicate that the Government will accept the amendment nor do they have an intention to withdraw the clause. As she pointed out, Clause 18 will amend the law by introducing a new regime for the partial authorisation of insolvency practitioners. In future, those wishing to become insolvency practitioners will be able to qualify in relation to personal insolvency cases only, in relation to corporate insolvency cases only or in relation to both, as is currently the case.
The effect of the noble Baroness’s amendment would be to allow insolvency practitioners to be partially authorised but only in relation to individual insolvency. As I will come on to when I discuss the clause itself, partial authorisation will remove barriers to entry for those who wish to specialise in just the one discipline. However, I make it very clear that it is not the Government’s intention to restrict this opportunity only to those who wish to deal with individual insolvency. We believe that there should be an opportunity to specialise in individual insolvency, in company insolvency or, and as things stand at the moment, in both. There is no compulsion here; it would be the choice of those wishing to pursue a career as an insolvency practitioner.
The insolvency body R3, to which the noble Baroness referred and which, I acknowledge, is opposed to partial authorisation, has told the Government that 27% of insolvency practitioners work in firms that specialise in corporate insolvency. This compares with 5% who work in firms that deal only with individual insolvency.
The noble Baroness said that take-up of the measure will be small and she asked why we should proceed with it. Existing insolvency practitioners who have gained authorisation for both personal and corporate matters want to continue to cover both areas, but that will not necessarily be the case for new entrants. The Government believe that partial authorisation will be attractive to a minority within the profession who, by focusing on a specific sector or on specific clients, will find that partial authorisation allows them to take appointments in the types of insolvencies that they deal with.
We believe that the changes proposed in Clause 18 will result in lower entry costs into the profession for those who seek partial authorisation and that they will, over time, increase competition and lower fees. That, in turn, can lead to improved returns to creditors in insolvencies. That was certainly my experience when I was a Member of Parliament dealing with companies and small businesses that were often at the receiving end when larger companies went into administration. Very often, it is small businesses that suffer the most when there is an insolvency. If we can improve returns to creditors, including many small businesses, that must surely be a good thing.
It is important to have highly skilled professionals. While we are talking about partial authorisation, company insolvency practitioners and those engaged in personal insolvency matters require a full authorisation. I cannot accept what the noble Baroness says about this being a dumbing-down. Those who pursue that one part of the profession will have a full qualification and therefore I cannot accept that this is about lowering standards. It is important to have highly skilled professionals. We must not forget that imposing unnecessary regulatory burdens on entry into a profession itself has a detrimental impact, particularly on the public, who pay for the services of such professionals.
The noble Baroness mentioned exams and seemed to think that there would be an increased cost. I suspect that if someone is aspiring to become an insolvency practitioner and there are fewer exams to take, there will be a lesser cost for that individual. With regard to exams, I make it clear that the Insolvency Act 1986 provides that the recognised professional bodies that authorise and regulate insolvency practitioners must have in place rules to ensure that insolvency practitioners meet acceptable requirements in relation to education, practical training and experience. A memorandum of understanding between the Secretary of State and the regulators that underpins the Insolvency Act requirements provides that applicants for authorisation must hold a pass in the Joint Insolvency Examination Board exams. I assure the Committee that officials will work with the profession to modify the current exam structure to ensure that partially authorised insolvency practitioners can demonstrate a broad knowledge of both disciplines. The exam structure will obviously have to change, but I cannot see that it is going to lead to the greatly increased costs that the noble Baroness indicated.
As I said, Clause 18 is not about lowering standards; it is about setting appropriate standards. We are asking: why should someone who deals with only personal bankruptcy and individual voluntary arrangements have to know about the finer details of corporate administrations, unless of course they choose to do so? If they do, then of course that choice will still be there. For those insolvency practitioners who at present choose to practise only in corporate or only in personal insolvency, the time and money spent studying an area in which they do not practise will add little or no value to the service that they offer their clients.
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Many individuals in debt do not need advice at the same time on corporate insolvency. In 2013, there were a total of 101,049 personal insolvencies in England and Wales. In contrast, there were 18,841 corporate insolvencies. Despite those two very different figures, the insolvency practitioners who dealt with those 100,000 personal insolvencies, many of which involved no business affairs or any matters requiring specialist corporate insolvency knowledge, had to study corporate matters before they could gain their qualification. That means that many of those who set out to qualify take longer to do so, some ultimately giving up on the way. For those who work in firms that specialise in one area of insolvency, the lack of practical experience in the other area can make it difficult to pass professional
examinations if they are studying at the same time as pursuing their training in a particular company. That, too, is clear barrier to entry.
I think that the noble Baroness said that the figure was somewhat under 2,000. My understanding is that the figure for those who take appointments is quite a bit lower, at 1,350. This number has not changed much in recent years. We recognise that many will still want to be authorised for both corporate and personal, but we think that it is useful for those who wish to specialise to be allowed to do so. The noble Baroness also said that it would do nothing to help small firms and that only large firms would be able to take advantage. I have already indicated the advantages and the benefits that might feed through to small firms that are creditors in insolvency cases. The changes will reduce the cost of training for applicants who wish to specialise. Savings on training and examination fees are likely to be of proportionally greater benefit to smaller firms of insolvency practitioners. Larger firms tend to charge higher fees for their services and typically are set up to deal with higher-value insolvencies. Businesses looking for lower-cost advice will benefit from greater competition in the middle market and among smaller firms.
Ultimately, this clause gives aspiring insolvency practitioners a choice. As I have said, many will continue to choose full authorisation for personal and corporate insolvency work and, for those who do, the status quo will remain. Those who choose to specialise will benefit from lower-cost entry into the profession. In each case, they will be required to reach high standards in personal insolvency, if that is the area that they choose, or corporate insolvency if they choose that route.
We acknowledge the excellent work done by insolvency practitioners. I think that the noble Baroness mentioned the high ranking accorded to insolvency practitioners in the United Kingdom. They do valuable work to facilitate business rescue and they ensure that businesses with viable futures are allowed to go forward and grow despite short-term financial difficulties. Insolvency practitioners go about their work with huge skill and care and they make a significant contribution to the economy. Nothing in this clause detracts from that. The clause opens up greater choice, which I believe will bring greater benefit. I therefore ask the noble Baroness to withdraw her amendment and not press her opposition to Clause 18 standing part of the Bill.