My Lords, I am grateful to the noble Baroness for tabling this amendment. We have debated this matter in Committee and I met her and
representatives of R3 a few weeks ago to discuss it. The amendment seeks to limit partial authorisation to personal insolvency. This debate allows the Government to set out why we believe that allowing specialised authorisation for insolvency practitioners for both personal and corporate insolvency is the right thing to do.
I recognise that this is a matter of considerable interest to those in the insolvency profession. However, there is a wider impact. The purpose of generally requiring insolvency practitioners to have certain qualifications and experience is that they are given significant powers by statute and it is important that there is confidence that they will use such powers appropriately. It is not to protect insolvency practitioners as a profession as such. It is important, therefore, that the barriers this places on entry—there is quite properly a barrier because of the statutory responsibilities and powers—are no higher than needed for the purpose. I think this was the context in which my right honourable friend Jenny Willott was speaking. The noble Baroness has not provided any evidence whatever that having separate authorisations for personal and corporate insolvency would in any way lower the standards in each of these disciplines.
Most insolvency practitioners are already qualified, usually as accountants, sometimes as lawyers. What we are discussing is what specific training and qualifications they need in order to act as insolvency practitioners. The amendment would allow specialised authorisation in personal insolvency but not corporate, so I will focus on why we believe that it would be helpful to allow specialised authorisation for corporate insolvency.
Opponents have said—as the noble Baroness herself did in moving her amendment—that there is no evidence of the need for change. However, there have been reports on the insolvency profession that have raised concerns about the level of competition in this profession. Two independent reports have noted failings in the current regime that result in fees being higher than they should be. We believe that partial authorisation will increase competition and place downward pressure on fees, which in turn could benefit creditors in the form of higher dividends.
5.45 pm
The noble Baroness also referred to the member survey from the Insolvency Practitioners Association. She indicated that 61% responded that they did not think the proposals were a good idea. However it is important to put that response in its proper context. Opinions were broadly divided depending on the stage of the respondent’s career and the nature of the practice where they worked. A majority of more junior professionals considered the proposals to be a good idea—between 65% and 68%. A similar majority of those working in specialist practices thought the proposals a good idea. It may well be that if you are there—already in the tent—you might not see the need to change. However those who wish to enter the profession may well see a need for change. It is interesting that the more junior professionals thought that it was a good idea.
The argument has been put forward that large corporate firms will benefit from reduced training costs, giving them a competitive advantage over small firms, which will need to train fully authorised practitioners. To argue that such firms as the Big Four accountancy companies compete in the same market as small local practices is not really credible as regards corporate insolvency. Yes, businesses of all sizes may require insolvency advice, but your small family business does not ordinarily go to the big four firms when it finds itself in financial difficulties. Large corporate firms will benefit from reduced training costs if they wish to train specialists, and this is a good thing. It will make our UK-based global players that little bit more competitive when they go to compete for work in the international marketplace. Those who wish to specialise in corporate insolvency will be able to spend precious training time perhaps learning about more specialised disciplines, such as cross-border insolvency issues or wider restructuring complexities, rather than the intricacies of personal bankruptcy law which they may never need.
The concept of partial authorisation is essentially about choice. No one will be required to specialise but they may choose to if it makes sense for them. If a small firm’s business model and client base means that it operates as a boutique corporate specialist, it should be allowed to train corporate specialists. It should not be held back and subjected to unnecessary costs by the firm down the street which chooses to train only fully authorised practitioners.
We must also not forget those who pay the price if there are unnecessary costs to being an insolvency practitioner—it will be the creditors, themselves often small businesses. The noble Baroness, Lady Hayter, said that the changes would do nothing to help small firms. However, they will reduce the cost of training for applicants who wish to specialise, and savings on training and examination fees are likely to be of proportionately greater benefit to smaller firms of insolvency practitioners.
Concerns have been raised about corporate specialists who provide advice to directors of small businesses and do not have the requisite knowledge to advise both the company and the directors in their personal capacity. In order to be able to offer advice that does not give rise to unacceptable conflicts of interest, corporate specialists will need to possess a basic understanding of the wider insolvency landscape, including personal insolvency. We have, furthermore, already indicated—in Committee and when I met the noble Baroness and the representatives of R3—that officials will work closely with the Joint Insolvency Examination Board to ensure that specialists, both corporate and personal, will have a sufficient overview of insolvency and issues such as ethical issues to be able to act appropriately.
Insolvency practitioners are required to act in accordance with a professional code of ethics. The code is clear that practitioners should take reasonable steps to identify situations that may arise in the course of their work which could pose a conflict of interest, and then put arrangements in place to manage them. Giving advice to both the company and its directors in
their personal capacity is one of the situations that could well pose a conflict of interest in many insolvencies. Granted, a practitioner acting for the company may offer some general advice on the personal affairs of the directors, but this should be basic information. We believe that this can be achieved without the need for a corporate specialist to spend many hours at considerable cost studying the finer details of personal bankruptcy.
We recognise that the numbers may be small—we are not running away from that and we are not overselling this proposition—but they must be seen in the context of the relatively small number of practitioners anyway. A more important point is that we should not insist on wider requirements than are actually necessary as this will increase costs which ultimately small businesses and others have to pay. In 2013, Professor Elaine Kempson carried out a review of the fees and found that the headline rates for insolvency practitioners could be as much as £800 an hour. These fees are paid for by creditors who receive dividends only after such costs have been paid. The then Office of Fair Trading also carried out a study of the corporate insolvency market and found that competition was not fully effective. As I said earlier, additional competition will place downward pressures on these rates and creditors will benefit in the form of increased dividends.
Let us not forget that many of those paying thousands of pounds for tuition are funding that from their own pockets, investing their time in necessary study. Removing the need to study and sit the exam for one of the current three exam papers would save close to £4,000 in tuition and exams fees, and this is what we will work with the exam body to try to achieve. Allowing specialised authorisation for both personal and corporate insolvency will provide choice for those who wish to enter the profession, reducing the time and cost to qualify without reducing necessary standards. This is an important industry which has a vital role to play in promoting rescue and helping to resolve intractable debt problems. I believe that our proposals are measured and proportionate and I therefore hope that the noble Baroness will not press her amendment.