R3 recognises the case for regulatory reform as OFT concludes its market study of insolvency
Insolvency trade body R3 welcomes the opportunity to help shape regulatory reform to build further trust among unsecured creditors and sustain the important work carried out by the insolvency profession. According to a survey of insolvency practitioners conducted by R3, just over half believe the current regulatory system does not build trust in IPs and the process of insolvency. We appreciate that the system can seem difficult to navigate and hard for unsecured creditors to engage with. We look forward to learning more from the OFT’s recommendations on how reform can be best achieved.
Aside from the regulatory reforms, the OFT is otherwise awarding the industry a ‘clean bill of health’ and will not be taking the study into a second phase. This comprehensive study looked at every aspect of insolvency practitioner work from fee levels to competition between different sized firms and the dual role of adviser and administrator. The OFT concluded in their own words that the insolvency industry is ‘an important lubricant to an efficient economy’ and works well in the ‘majority of cases.’
R3’s President Steven Law commented: “We are pleased that the OFT has decided that no radical overhaul of the profession is needed and focus instead on regulation which, as it stands, can be difficult to navigate.
“Insolvency practitioners have a duty of care to the body of creditors as a whole, including secured and unsecured creditors. The report mentions ‘the weak position of unsecured creditors and the failure of the regulatory regime to correct for this’. R3 appreciates that unsecured creditors are less likely to understand or feel empowered by the insolvency process, either through a lack of experience with it or because they believe their stake is too small to affect change. The OFT’s research demonstrates that very few respondents to the OFT’s interviews with creditors had attended a creditors meeting, nor did they actually want to engage with the process. We look forward to doing our part to address this, which must come jointly from our profession and unsecured creditors themselves.”
It’s a market reality that IPs charge more when working with unsecured creditors, as it takes up more time than dealing with one secured creditor and could amount to thousands of disparate organisations. Setting up and running creditors meetings also costs money. Secured creditors are routinely able to negotiate discounts as a result of their more regular dealings with insolvent businesses and practitioners.
R3 welcomes the recommendation to reposition the Insolvency Service as regulator of the Recognised Professional Bodies (RPBs), which is its more important role, and withdraw from its role as a direct regulator of IPs.
R3’s President Steven Law concluded:
“We have been working closely with the OFT since the study began in November 2009, and their conclusions confirm our strong belief in our profession and clears up some misconceptions that were out there. We look forward to engaging with the Department for Business, Innovation and Skills in taking forward these recommendations.”
R3 Press Office