Insolvency practitioner bonding

15 March 2017

In December last year, R3 responded to the Insolvency Service’s Call for Evidence into the bonding arrangements for insolvency practitioners. The Call for Evidence was issued in response to increasing concerns about the bonding system, including rapidly rising premiums for smaller firm practitioners and the apparently adversarial nature of the bond claim process. The options suggested for resolving these concerns were wide-ranging: proposals went from introducing a voluntary protocol to scrapping the system entirely (as previously occurred in Australia).

To formulate a response, we met with bond providers, successor insolvency practitioners, solicitors, and small, medium and large firm insolvency practitioners. In the response, we encouraged the Insolvency Service to seek further evidence into each of the issues being considered as there is simply no available empirical evidence to support or reject many of the issues that had been identified with the system.

That said, the Insolvency Service’s suggestion that a claims management protocol be introduced would be a useful first step. While this would not resolve specific fundamental weaknesses in the legislation and other structural issues, an effective protocol would improve communication, transparency, and help to simplify processes for all parties.

Whilst a claims management protocol is being developed, further consideration should be given to whether the bonding system needs to be removed entirely, or whether legislative amendments would be capable of resolving the issues which stem from weaknesses in the current legislation.

In order for any further changes to be effective in achieving their objectives, a full consultation should be issued to provide adequate opportunity for all possible options and perspectives to be discussed and analysed in sufficient depth.

Keep checking back here for updates on developments.