Insolvency Regulation: A Pantomime Western?

The Insolvency Service is consulting on the future of insolvency regulation

The insolvency industry hit the headlines recently when the All Party Parliamentary Group on Fair Business Banking (APPG) released, in September 2021, a rather damming assessment of insolvency practitioners’ conduct in England and Wales. In the foreword to its report, Kevin Hollinrake MP, lamented that the APPG had been presented with evidence of “intimidation, deception, dishonesty and even misappropriation of assets” by Insolvency Practitioners.

This report led to some colorful press coverage, with both The Times and Financial Times referring to the sector as operating in the “Wild West”, with widespread talk of the need for a “clampdown”.

Once Upon a Time in the West

So, is the sector as lawless as all this suggests? No. The industry has been regulated since the 1980’s and like other recognised professionals, Insolvency Practitioners need to pass demanding exams, obtain insurance cover to protect others from their negligence (or even dishonest actions) and be a member of a professional body which will monitor their ethical conduct and competence.

That is not to say that the current regulatory framework is perfect and cannot be improved. Every industry has its ‘bad apples’ and less than scrupulous individuals which need to be weeded out. Presently there are four separate professional bodies which authorise and oversee the work of some 1,600 qualified Insolvency Practitioners in the UK. Following concerns that this separation of bodies has led to ‘inconsistent’ regulatory outcomes for creditors, the public and alike, the Insolvency Service launched a wide‑ranging consultation on 21 December 2021 entitled The Future of Insolvency Regulation.

The Wild Bunch

Perhaps in a bid to dispel concerns that the insolvency industry is rife with widespread malpractice, the Government foreword to the consultation makes an important recognition:

“The UK is rightly regarded as having a first-class insolvency regime, which is respected and admired internationally.”

The industry performs a vital role in the UK economy, supporting and advising those in financial difficulty and working on behalf of creditors and employees to return to them monies which may be owed.

The stated aim of the consultation is to result in changes that “strengthen, reform and simplify” the current regulatory system and its proposals seek to close ‘gaps’ in the current regime.

The Magnificent Seven

What are the key proposals? In broad terms, they are the:

  1. Creation of a single independent regulator sitting inside of the Insolvency Service.
  2. Introduction of statutory regulation of all firms offering insolvency advice.
  3. Introduction of uniform standards applicable to all regulated firms and individuals.
  4. Introduction of a formal compensation scheme for those adversely impacted by poor service, error or wrongdoing.
  5. Ability to level punitive fines against firms in addition to Insolvency Practitioners.
  6. Introduction of a register of all insolvency practitioners and authorised firms.
  7. Enhancement of the minimum terms of the surety cover obtained by Insolvency Practitioners.

The matters highlighted in bold are arguably the most important suggestions.


In its September 2021 report, the APPG took particular aim at the role of the four current professional bodies suggesting that they were unable to robustly discharge their regulatory responsibilities due to “a tension between promoting the reputation and interests of an industry and also calling out and censoring poor behaviour”. The ICAEW, being one such professional body has already publicly disagreed with this view. Resolving this perceived tension is cited by the Insolvency Service when proposing its preferred option of establishing a new “independent” regulator within the Insolvency Service to sanction bad behaviour in place of the professional bodies.

But is this proposal just smoke and mirrors? The Insolvency Service has rightly recognised the “wealth of knowledge and skill” amongst the existing professional bodies and is consulting on whether the new regulator should delegate back to those bodies the:

  • Ability to authorise Insolvency Practitioners and/or firms to provide insolvency advice; and
  • Continuation of their routine monitoring of Insolvency Practitioners.

If the aforementioned powers are retained by the existing professional bodies, their day-to-day role will remain broadly as it is now with the new regulator simply responsible for investigating possible breaches of standards it would set.

We also need to recognise that the Insolvency Service itself acts in the same arena as Insolvency Practitioners and the Official Receiver and therefore we are in danger of swapping one conflict for another.

The Good, the Bad and the Ugly

Contributors to the consultation will form their own views on the desirability and effectiveness of the proposed reforms.

For those of us at Milsted Langdon, the standout proposal is the sensible suggestion to regulate firms that provide insolvency services and not only Insolvency Practitioners themselves, which is how the current model operates. A change such as this would bring the insolvency industry in line with the regulatory regime applicable to accountancy and audit. This would modernise the regulatory framework, closing gaps in the current regime, and facilitate the levying of sanctions and potentially significant fines for those firms where their insolvency advisors err or act improperly.

A Fistful of Dollars

The most unsettled question of all appears to be how to fund the new regime, where the direct and indirect costs of the future framework, however it evolves, are uncertain.

Bend of the River

Does the consultation herald a change in course in the future of insolvency regulation? Yes, more than likely. The Restructuring and Insolvency team at Milsted Langdon has no objection to any changes which improve public confidence in this essential industry. Whatever changes are introduced must, however, carefully consider the costs the new regime poses to ensure that no-one is ‘priced out’ of being able to get advice from duly authorised professionals and firms who may ultimately need to recover regulatory expenses in the fees they charge.

Good quality, honest and unbiased professional advice should be the absolute minimum that Insolvency Practitioners deliver and we are pleased at Milsted Langdon to have gained a well-earned reputation for effectively helping individuals and business survive and even thrive after periods of financial difficulty.


Those wishing to contribute to the consultation have until 25 March 2022 to do so:

Posted in News, Newswire.