Question mark

The Government is debating the proposals to the Deregulation Bill (Bill). Although the Bill is generally supported, there is one controversial clause (Clause 9), which will introduce partial licences for Insolvency Practitioners (IPs). Currently, IPs must train and pass exams covering both corporate and personal insolvency to become qualified. Under the new proposals in the Bill, IPs would be able to train in personal or corporate insolvency and then only practise in their respective field.

Why the change?

The Government has introduced the new measures to try to increase competition and to reduce bureaucracy in the market. However, the response is mixed, including some scathing criticism revolving around the core of the measures’ aim and the adverse effect on competition and smaller practices.

Effect on smaller companies

There are concerns the Bill will adversely affect smaller practices. If IPs are only qualified in one area, there is a perception that the quality of advice they give will be reduced by their not having a knowledge of the other, distinct, area.

In practice

The lines between personal and corporate insolvency can easily blur, making partial licences unworkable, indeed a complete nonsense. Take the example of an insolvent partnership regardless of whether the individual partners have limited or unlimited liability. The partnership itself is covered by corporate insolvency, yet competent advisors must also consider personal insolvency issues for the position of the individual partners. The two issues cannot be separated.

If this concern is valid, smaller practices, less equipped to offer the range of services that larger practices do, may not be able to compete in more complex cases or any cases where the two regimes are relevant.

Another risk is that advice, given in a vacuum without consideration to the other area, might not be right.

Effect on competition

One of the main aims of the Bill is to increase competition within the insolvency market. However, evidence from R3’s membership (representing 97% of UK IPs) shows that just 27% and 5% of their members specialise in either corporate or personal insolvency respectively. This shows that in the market, most IPs practise both personal and corporate insolvency so the new proposals are unlikely to be taken up by many IPs.

And finally

It is possible that this Bill will only serve to add further complexity to a licensing regime that, on the whole, works well. The Bill further illustrates again how little understood the work of IPs is.  Whether the Government will listen to industry protests remains to be seen.

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.