THE INSTITUTE OF CHARTERED ACCOUNTANTS IN ENGLAND AND WALES INSOLVENCY REGULATION

Transcription

1 THE INSTITUTE OF CHARTERED ACCOUNTANTS IN ENGLAND AND WALES INSOLVENCY REGULATION REPORT to the INSOLVENCY SERVICE for the year ended December 2001

2 THE INSTITUTE OF CHARTERED ACCOUNTANTS IN ENGLAND AND WALES REPORT ON INSOLVENCY REGULATION A. INTRODUCTION 1. General 2. Summary of key points Contents B. MATTERS TO REPORT FOR Professional Standards Directorate 4. Joint working arrangements 5. Joint Insolvency Monitoring Unit 6. Desk Top Monitoring 7. Newsletter 8. Joint Insolvency Committee and Insolvency Practices Council C. REGULATORY ACTIVITY 9. Insolvency Licensing Committee 10. Review Committee 11. Appeal Committee D. DISCIPLINARY ACTIVITY 12. Investigation Committee 13. Disciplinary Committee 14. Appeal Committee E. FEES AND COSTS 15. Licence fees 16. Costs F. FUTURE ISSUES 17. Insolvency Practices Council 18. Joint Insolvency Committee 19. Practice Assurance

3 LIST OF APPENDICES I Insolvency News Issue No 10 II III Insolvency Licensing Committee members Breakdown of insolvency complaints

4 THE INSTITUTE OF CHARTERED ACCOUNTANTS IN ENGLAND AND WALES REPORT ON INSOLVENCY REGULATION A. INTRODUCTION 1. General 1.1. This is the report of the Institute of Chartered Accountants in England and Wales (the Institute) for submission to the Insolvency Service of the Department of Trade and Industry (DTI) for the calendar year The Institute is a Recognised Professional Body (RPB) under section 391 of the Insolvency Act 1986 for the purpose of regulating such of its members as are permitted to act as Insolvency Practitioners (IPs). Accordingly, the Institute operates disciplinary and regulatory systems to ensure that its IPs are fit and proper persons so to act and that they meet acceptable requirements as to education and practical training and experience. The Institute issued Insolvency Licensing Regulations and Guidance Notes in December 1997, these have remained unchanged The Institute's systems were inspected by the Insolvency Service, on behalf of the Secretary of State for Trade and Industry, in March The inspectors commented positively upon the professional staff involved in regulation and complaints handling, and reported that they found the Institute s systems to be generally sufficient to enable it to ensure effective regulation of IPs. The inspectors made recommendations for (mainly administrative) improvements to systems and procedures The Institute authorises the largest number of IPs. As at 31 December 2001, the Institute licensed 715 IPs out of a UK total of approximately The Professional Standards Directorate (PSD) has the delegated authority of the Council of the Institute to deal with matters relating to the regulation and discipline of all of its members. Such matters are administered through the Professional Standards Office (PSO) (see 2.2 below) and a committee structure, utilising Chartered Accountants (CAs) and other independent volunteers. It is not a requirement for committees to have independent members however the Institute does so in the interests of balance and fairness. Regulatory matters are dealt with by the Insolvency Licensing Committee (ILC) and disciplinary matters by the Investigation Committee and the Disciplinary Committee The regulatory arrangements also include a Review Committee, and there is an Appeal Committee, which considers both disciplinary and regulatory matters.

5 1.7. The matters considered by the ILC and the other committees, to the extent that they relate to licensed IPs, are set out in sections C and D and in the appendices to this report. 2. Summary of key points 2.1. The Institute has continued to play a leading role in the development of the new regulatory arrangements. Its representative acted as chairman of the Joint Insolvency Committee (JIC) and the Institute has also provided the JIC's secretariat The Professional Standards Directorate (PSD) was established in 2001 and includes a policy division. The PSO operates within the PSD, and carries out the Institute s quasi-judicial regulatory and disciplinary responsibilities. The activities of the PSO are ring-fenced from the activities of the PSD and information used by staff in the PSO, specifically information on individual cases, is not available to those within PSD The PSO has continued to work jointly with the IPs Association (IPA), with a view to ensuring a consistent approach to regulatory and disciplinary matters affecting the majority of IPs The Institute received 104 monitoring visit reports in The Insolvency Licensing Committee requested undertakings from IPs in 56 cases. In 8 cases the ILC ordered regulatory penalties No licences were withdrawn in However, the appointments of one practitioner were transferred by court order and the practitioner was not given the option to renew his licence upon its expiry members ceased to be licensed; of this number most surrendered their licences as a consequence of retirement; two licence holders died during the year. There were 12 new licences granted during The total number of licence holders at the year end (715) includes 25 with conditional licences (i.e. due to retire within the next 24 months), 3 whose licences were restricted and 186 non-appointment takers The total number of new complaints in the year was 286 (compared to 252 in 2000).

6 B. MATTERS TO REPORT FOR Professional Standards Directorate 3.1. The regulatory and disciplinary work in relation to IPs continued to be dealt within the PSO in Milton Keynes The investigation team responsible for insolvency discipline and regulation is headed by Bob Pinder. The PSO s structure (insofar as it affects insolvency activity) comprises the following divisions: Assessment and Conciliation Investigation Legal Services 3.3 Following the split between case work and policy (see 2.2 above) additional resources will be devoted to the investigation of insolvency complaints in Joint working arrangements 4.1. The Institute has a close working relationship with the IPs Association through the Joint Insolvency Monitoring Unit (JIMU) (see section 5 below). Joint working arrangements for the regulatory and disciplinary committees of the two organisations have continued to operate in order to ensure that there is a consistent approach to regulatory and disciplinary matters for a majority of IPs Joint meetings of the Institute s Insolvency Licensing Committee and the IPA s equivalent committee were held monthly throughout the year. In February and August 2001 the committees held joint policy meetings, which were attended by observers from other RPBs and JIMU Co-operation in the disciplinary arrangements of the Institute and IPA have continued with members of the IPA's Investigation Committee (IC) who are Chartered Accountants attending each of the Institute's IC meetings on a rota basis. A reciprocal arrangement exists with members of the Institute s IC attending IPA IC meetings. 5. Joint Insolvency Monitoring Unit 5.1. The JIMU was based at Bow Bells House in the City for part of the year, occupying a small suite in the offices of the IPA. In August, the Unit moved to its own offices in Croydon. Scottish Union House 26/28 Addiscombe Road Croydon CR0 5PE

7 5.2. The monitoring unit is operated jointly by the Institute and the IPA. It is a company limited by guarantee, controlled by a board of directors. The directors during 2001 were Mr I Walker BSc FCA MIPA (Institute) and Mr K Ross CA FIPA (IPA). The unit also has an independent chairman Mr J Anthony Holland LL.B M.Phil. The unit acts as agent of the two regulatory bodies in carrying out monitoring visits to IPs. Occasional visits were also carried out for at least one other RPB The unit is managed by Ivona Poyntz (Chief Executive) independently of the two RPBs. The accounting, payroll and company secretarial functions previously undertaken by the Institute are now managed within the unit. During 2001 resources increased to five full time inspectors, mostly working from home. Additionally, in June the unit recruited a senior inspector to carry out technical reviews and improve the quality of the unit s output A breakdown of reports submitted to the Institute during 2001 is as follows: Routine Targeted Total The Institute is committed to conducting at least one routine visit to all appointment-taking IPs during the current cycle (1998 to 2003). IPs are selected for a routine visit on the basis of risk indicators (e.g. complaints, information from annual returns and other regulatory intelligence). These visits are conducted without direct charge to IPs, the cost of such visits being met out of income from licence fees Targeted visits are those ordered by the Insolvency Licensing Committee; IPs are currently charged 1,000 + VAT per full day on site in respect of such visits (this figure includes preparation and inspectors' time spent writing reports etc off site). 6. Desk Top Monitoring 6.1. Desk Top Monitoring (DTM) is designed to provide information to assist JIMU in its selection of visits, so that priority may be given to those in respect of whom certain risk factors have been identified. DTM utilises information provided by the Institute, including complaints received, statutory defaults notified by the Insolvency Service, and other regulatory intelligence Complaints and default information was also reported regularly to the ILC throughout the year.

8 6.3. During 2001 IPs were asked to complete their annual return on-line. IPs were ed details of how to access JIMU s website along with a password, allowing them secure access to their annual return. A paper based return was also made available to those without internet access. Regulatory action was considered in respect of those IPs who failed to complete the return on time or not at all. 7. Newsletter 7.1. The Institute aims to produce at least one newsletter each year for its IPs. One newsletter was produced in 2001 and a copy of this, issue number 10 circulated in November 2001 is attached (Appendix I) This contained: Advice on changes at JIMU Highlights of the 2000 report to the DTI A reminder regarding control of cases A reminder regarding a new Statement of Insolvency Practice (SIP) An article on the implications of Statement (Members Handbook) for IPs An article regarding new insolvency regulatory arrangements Notice of bonding for nominees under the Insolvency Act 2000 An article regarding The Financial Services and Markets Act 2000 and exemptions for IPs when acting under S388 of the IA86 Advice of the availability of the Institute s response to the DTI s proposals form insolvency reforms Information regarding committee appointments Useful contact numbers 8. Joint Insolvency Committee and Insolvency Practices Council 8.1. The Institute participated in all meetings of the JIC during 2001 through its representative Mr I Walker BSc FCA MIPA. Mr Walker was assisted by David Kerr MIPA MICM, senior manager, insolvency regulation, in the PSO. Mr Walker continued to act as chairman of the JIC and David Kerr as secretary throughout the year Mr A Barrett (member and authorised practitioner) acted as the Institute's nominated director on the board of IPR Services Limited throughout the year. This company deals with appointments to and funding of the Insolvency Practices Council (IPC) Two Institute IPs served as representatives of the profession on IPC. 8.4 SIP 15 (Reporting and providing information on their functions to committees in formal insolvencies) was issued in June 2001 and a revised SIP 8 (Summoning and holding meetings of creditors convened pursuant to Section 98 of the Insolvency Act 1986) was issued in December These were issued to all Institute IPs by post in the form of a technical release.

9 C REGULATORY ACTIVITY 9. Insolvency Licensing Committee 9.1. The Insolvency Licensing Committee (ILC) is responsible to the PSD for the licensing and monitoring of its IPs under the Insolvency Act 1986 and the Insolvency (Northern Ireland) Order In 2001, the ILC comprised 12 IPs and 4 independent members. In accordance with the joint working arrangements described above, the ILC and its IPA equivalent committee have common membership, and the full complement comprises: ICAEW nominated IPs 6 IPA nominated IPs 6 Independent members (25%) 4 Total 16 Appointments to the Committee are reviewed on an annual basis. Members generally serve up to 2, three-year terms. The Secretary to the ILC is David Kerr, MIPA. 9.2 A list of members of the ILC is attached (Appendix II) and is also available on the Institute s website: The ILC did not include amongst its number in 2001 a member of the Council of the Institute. The ILC includes 4 independent members (drawn from legal and banking backgrounds) and at least 1 of these members attended each meeting of the ILC in accordance with the requirements of the Institute's Insolvency Licensing Regulations. Independent members participate fully in all decision making processes and provide valuable independent input to the ILC's deliberations. During 2001 one lay member (Howard Page QC) left the Committee and was replaced by Brenda Hindley LL.B The ILC generally meets monthly. Policy meetings were held in February and August jointly with the IPA. Other ad-hoc meetings or sub committee meetings were held as necessary. Some business has been conducted through sub committees by post and . The ILC considers JIMU reports and other information received by the Institute. Its responsibilities include consideration of new applications for insolvency licences, restricting or withdrawing licences as appropriate and imposing regulatory penalties (by consent). Licence restrictions may relate to the acceptance of new insolvency appointments or be time related (e.g. limited to a period shorter than the usual 12 months) The Institute is one of the designated authorities under the European Recognition of Professional Qualifications Regulations for the purposes of considering applications from EU migrants wishing to practise insolvency in the UK. The Institute has not received any such applications to date.

10 9.5. The ILC is charged with responsibility for considering whether a licence holder is a fit and proper person to act as an IP. The ILC has the power to publicise its decisions and generally does so in the case of withdrawal of authorisation or in the case of a penalty order; the ILC has occasionally ordered publicity in respect of licence restrictions, but will not generally do so if the restriction is used as a temporary sanction (e.g. suspension pending a further decision) Most JIMU reports received in 2001 were considered by the ILC and there was relatively little exercise by PSO staff of their delegated powers. However, satisfactory reports were not circulated to the ILC. In order to improve the efficiency and effectiveness of the decision making process of the ILC, JIMU reports were considered in detail by a sub committee and/or accompanied by a secretariat summary highlighting the regulatory issues requiring consideration. Details of the action taken are set out below. Decision Undertakings required Targeted visit ordered Penalty ordered 8 19 Restriction ordered 4 2 Routine visit requested (i.e. as priority) 2 0 Loss of membership 0 1 Licence withdrawn 0 0 A number of reports were considered on more than one occasion. The increase in undertakings and targeted visits requested is due to the increased number of JIMU reports consider by the ILC in Undertakings required Targeted visit ordered Penalty ordered Restriction ordered Routine visit

11 9.7. There were 12 new licences granted during All applications were valid, although in some cases further information was sought (mainly regarding the applicants experience). Requests for authorisation are generally processed (considered by the ILC) within 10 working days of receipt of a valid application. The ILC did not reissue any licences in the year and none were revoked. The ILC also ordered regulatory penalties ranging from 100 to 4,000; most of these penalties related to breaches of undertakings previously given or unauthorised fees drawn from insolvent estates and were publicised in Accountancy magazine; penalties for minor breaches of other regulations were generally not publicised In cases where IPs were found to have drawn unauthorised remuneration the Committee has generally considered the appropriateness of a penalty of a sum equivalent to the unauthorised fee, subject to taking into account mitigating circumstances and representations from the practitioner. In cases where agreement was not reached with the practitioner regarding proposed penalties, the matters were referred to those within the PSO responsible for consideration of disciplinary action Members have an opportunity to comment on the content of JIMU reports prior to consideration by the ILC. The draft JIMU report is sent to the practitioner before being submitted to the Institute and the member's comments are incorporated (usually as an appendix) in the report. Members have an opportunity to seek a review of the ILC's decision by applying for a hearing before the Review Committee. 10. Review Committee The Review Committee considers applications made by members in respect of regulatory decisions taken in respect of insolvency and other disciplines The Committee sits as a panel comprising 3 individuals - 2 Chartered Accountants and 1 independent person. For the purpose of hearing insolvency matters 1 member of the panel is a person with insolvency expertise. The member is entitled to attend the review hearing The Review Committee considers matters afresh and may hear any new material put forward by the licence holder or the Institute. The Review Committee can make any order that the ILC could have made The Review Committee is assisted by a legal assessor who is present at all Review Committee meetings and whose role it is to advise the panel One insolvency matter was heard by the Review Committee in The Review Committee made orders in terms similar to those made by the ILC to restrict the IPs licence Members who may be dissatisfied with the decision of the Review Committee can apply to the Institute's Appeal Committee.

12 11. Appeal Committee The Appeal Committee sits as a panel comprising 5 individuals - 3 Chartered Accountants and 2 independent persons, one of whom is a lawyer who acts as chairman. For the purpose of hearing insolvency matters 1 member of the panel is a person with insolvency expertise The Appeal Committee considers both regulatory and disciplinary matters The Appeal Committee did not hear any insolvency regulation matters in Details of disciplinary matters referred to the Appeal Committee are set out in section 14 below.

13 D DISCIPLINARY ACTIVITY 12. Investigation Committee Incoming complaints are first assessed to identify the most appropriate course of action. Some less serious complaints may be more suitable for conciliation; others may be identified at the outset as being more appropriate for investigation with a view to disciplinary action. Approximately 40% of complaints are not proceeded with for reasons such as lack of evidence or the member is authorised by another RPB Most insolvency investigations were handled by one of two dedicated case managers; both are professionals with first hand experience of working in insolvency practices, have passed the Joint Insolvency Board examinations and have an understanding of the Institute's Bye-laws, ethical and best practice guidance. Case managers have an understanding of the practical problems faced by IPs and an appreciation of the issues of most concern to complainants. Case managers are expected to identify any additional issues which may be of concern from a disciplinary or regulatory point of view and, where appropriate, bring such matters to the attention of the relevant committee(s) Disciplinary matters are considered in the context of the Disciplinary Byelaws, and the fundamental principles and insolvency guidance set out in the Institute s ethical statements. Cases were also considered in 2001 in respect of IPs who were found to have acted in breach of the Institute s Clients Money Regulations The Insolvency Licensing Regulations provide that a licence holder must comply with the requirements of the Insolvency Act and its subordinate legislation and any other relevant legislation. Licence holders are also expected to have regard to Statements of Insolvency Practice (SIPs). In addition to the universal SIPs, the Institute has previously issued two guidance notes on the following subjects: Members Voluntary Liquidations Minimum Standards of Practice SIPs were issued by the Institute to licence holders in 2001 as noted in 8.4 above The above body of legislation and guidance forms the backdrop against which professional conduct matters (and to some extent regulatory matters) are assessed.

14 12.6. A breakdown of insolvency complaints received in 2001, incorporating a note of disciplinary decisions made, is attached as Appendix III. The total number of new complaints received in the year was 286. The following is a breakdown of this figure into the standardised complaint types requested by the DTI: Category Complaint Type No Received 1 Fees 24 2 Sale of assets 28 3 Breakdown/failure of communication 37 4 Breach of ethical guidance 12 5 CDDA reporting 2 6 Misconduct/irregularity at creditors meetings 21 7 Delay in dividend payments 0 8 Mishandling of employee claims 4 9 Commercial dispute 0 10 Complaint against legislation 4 11 Other 154 Total 286 PSO staff resolved a number of cases in correspondence without the need for referral to the IC. In cases where the case manager believes there is no case for the member to answer, but the complainant is not convinced of this, the matter can only be disposed of by reference to the IC The total number of insolvency complaints resolved by the IC in 2001 was 34. In 21 cases, the IC found no prima facie case; in such cases, the complainant has a right to refer the matter to the independent Reviewer of Complaints (ROC). In 2001, 13 cases were referred to the ROC and in all cases the ROC agreed with the finding of the IC that there was no prima facie case. 1 order was made by consent in 2001 as follows: Fine/Range of fines 5,000 (Severe reprimand) 500-4,000 Costs 3, , In 1 case, the IC found a prima facie case, but decided to take no further action. In a further 3 cases, the IC used unpublicised cautions. These cautions are designed to be penalties more serious than no further action but less serious than consent orders. It provides for payment to the Institute of a fixed sum by way of costs but does not involve any publicity. It is used in cases where, following a finding of a prima facie case, it is thought inappropriate to take no action and yet the matter does not merit the use of a consent order or a referral to the Disciplinary Committee. The fixed sum charged for an unpublicised caution was increased in 2001 from 200 to 500.

15 cases were referred to the Disciplinary Committee (DC). These were cases in respect of which either members declined to accept the consent orders or the matters were considered from the outset to be sufficiently serious to warrant a full disciplinary hearing. 13. Disciplinary Committee The Disciplinary Committee sits as a panel of 3 individuals 2 CAs and 1 independent person. The DC is assisted by a legal assessor of the 8 insolvency cases heard by the DC in 2001 were found to be proved Orders made by the DC were as follows: Range of fines Costs ,600-4,000 Reprimands 1 0 Severe reprimands 1 1 Withdrawal of practising certificate or 0 0 insolvency licence Exclusions 0 1 Not proved/no order Members have the right to apply to the Appeal Committee if they are dissatisfied with the outcome of a Disciplinary hearing. 14. Appeal Committee Details of the Appeal Committee are set out in section 11 above The Appeal Committee considered 1 insolvency case in The Committee affirmed the decision of the Disciplinary Committee that the member be severely reprimanded and further ordered that he pay costs totalling approximately 50,000. The matter is subject to possible judicial review procedures.

16 E FEES AND COSTS 15. Licence fees Licence fees for the Institute's IPs are charged on a scale ranging from 280 to 1,785 per annum based on fee income per IP. The lowest fee band is for nonappointment takers. The licence fee has been increased by inflation only In addition to licence fee income, the Institute received income from IPs in respect of targeted visits and regulatory penalties. 16. Costs The costs of the Institute's regulatory activity in respect of insolvency for the year ended 31 December 2001 were covered by licence fees, supplemented by targeted visit charges, penalties and other incidental income.

17 F FUTURE ISSUES 17. Insolvency Practices Council The Institute approved an amendment to the Memorandum of Understanding with the Insolvency Service to reflect this new part of the regulatory regime and the Institute will co-operate fully with the new Council, through the JIC or otherwise, as required. 18. Joint Insolvency Committee The Institute will continue the process of co-operation with other RPBs through the JIC, as well as through JIMU, the Joint Insolvency Examination Board and the Association of Business Recovery Professionals. 19. Practice Assurance 19.1 In December 2001 the Institute s Council agreed, in principle, to introduce a system of compulsory practice review (Practice Assurance), for all member firms. Current plans are that a firm will receive one visit every five years. It is intended that Practice Assurance visits will incorporate the current statutory monitoring arrangements for audit, insolvency and investment business. Practice Assurance will not diminish the current standards of statutory monitoring Detailed design of the scheme will be carried out during 2002 and will be based on a full programme of research and consultation with both members and staff groups from across the Institute.

18 COMMITTEE MEMBERS Appendix II INSOLVENCY LICENSING COMMITTEE Chairman: Ian Walker FCA MIPA, Begbies Traynor, Exeter Practitioner members: Hedley Brunt FCA MIPA, HLB Kidsons, Birmingham Anthony Benedict FCA FIPA, Benedict Mackenzie Giles Frampton FCA, Richard J Smith & Co, Ivybridge Len Gatoff FCA, ex Deloitte & Touche, Newcastle Stephen Goderski MIPA, Pannell Kerr Forster, London Colin Haig FIPA, Baker Tilly, London Alan Katz FCA MIPA, ex Arthur Andersen, Leeds Nigel Mallett ACA MIPA, Numerica Business Recovery Ltd, Bristol Roger Marsh FCA MIPA, PricewaterhouseCoopers, Leeds Maurice Moses FCA FIPA, Numerica Business Recovery Ltd, London Tony Thompson FCA MIPA, Piper Thompson, Weybridge Independent members: Norrie Graham Brenda Hindley LLB Richard Northcott Alan Sellers Secretary: David Kerr MIPA

19 Appendix III BREAKDOWN OF INSOLVENCY COMPLAINTS STATISTICS FOR 2001 (Comparative figures for 2000 are shown in brackets) Complaints in hand at 1 January (199) Complaints reopened 29 ( 5) Reclasification 12 ( 6) New complaints received in 2001: Liquidations - Compulsory 28 (12) - Creditors' voluntary 57 (65) - Members' voluntary 10 (3) Receiverships - Administrative 43 (22) - Other 9 ( 6) Administration orders 13 (34) Voluntary arrangements - Company 12 (11) - Individual 35 (40) Bankruptcies 79 (61) Interim receiver, prov liquidator 0 ( 3) Total number of new complaints 286 (252) Committee decisions: No prima facie case 21 (20) Prima facie case - no further action 1 ( 3) Unpublicised Cautions 3 ( 2) Consent Orders 1 ( 4) Formal complaints - proved 2 ( 2) - not proved/no orders 6 ( 2) -34 (-33) Cases closed by PSO staff -279 (-236) Total number of complaints in hand at year end 207 (193)