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THE INSOLVENCY PROFESSION is undergoing a dramatic metamorphosis as case law, consultation and government intervention are collectively changing the future of the industry. 

Frances Coulson, as only the second woman to take the presidency role at insolvency trade body R3, will have to contend with two consultations, two campaigns, and lobbying coming out of the seams of her briefcase in one busy year.

What happened?

The insolvency profession has had a bumpy ride of late with the general public outraged at the fees professionals are charging.

The Office of Fair Trading investigated insolvency practitioner (IP) fees and realised, although not perfect, its harsh reputation is specious. It made a series of recommendations, which it is hoped will bring greater transparency and balance.

The suggestions include overhauling the insolvency regulatory framework; detailed changes to legislation that will affect administration and liquidation; as well as the introduction of an independent complaints body.

Creditors involved in an insolvency process will, for the first time, be given a platform to voice their protests of practitioner fees. Currently stakeholders unhappy with an IP’s remuneration have to take it up with the courts. However, they can complain to the licensing bodies if they are unhappy with the IP’s work. The complaints body will be funded by the eight licensing bodies, costing the creditor nothing.

Proposed overhauls don’t stop there. In March, governing body the Insolvency Service launched a consultation to change the rapid turnaround administration process pre-packs.

Currently under a pre-pack a business is marketed and a sale arranged before the insolvency process begins and sold hours after entering administration. This can help keep the value of the brand intact because of the speed at which it is completed.

In 2010, more than 70% of pre-packs involved a sale to a connected party according to Insolvency Service statistics.

However, the reform could see them neutered, critics claim. If an IP wants to sell the business to a connected party such as a director or former owner, the creditors will be given three days to oppose the transaction. This delay could see the process slip into oblivion.

What happens next?

Although not an insolvency practitioner herself (she is managing partner of law firm Moon Beever), Coulson has been known as a representative voice for practitioners, especially the smaller ones which cannot afford PR, having been chair of the small practices group since 2008.

It is through the media that Coulson will be expected to conduct a lot of her upcoming work. The president has said one of her key objectives over the coming 12 months will be lobbying.

She will lobby to ensure changes to pre-packs, legislation and the introduction of a complaints body “don’t suffer the law of unintended consequences” and is prepared to vigilantly defend the profession’s name.

The consultation on OFT recomm¬endations is due to end on 6 May, with a report likely to follow a month later. The Insolvency Service hopes to introduce pre-pack changes in April 2013, after a “thorough consultation process” to begin later this year.

On top of the many proposed changes, R3 recently launched a campaign to stop suppliers holding the insolvency process to ransom by dramatically increasing their fees when a company enters administration. In many insolvencies, a supplier ends up doubling what they would normally charge to a company just to continue working with it while it is being traded insolvently. This increases the cost of the administration and brings down the dividend payments to creditors.

Coulson will be tasked with lobbying MPs as part of the campaign and trying to obtain a solution to the problem before the end of her term.
The busy president is also seeking greater clarification from MPs and governing bodies on what exactly is included in the cost of administration – paid by the IP before dividing up the money to pay to creditors.

In the last 12 months, case law has complicated the already difficult process. “Instead of case law we need a fix,” she said.
One thing is for sure, by the time Coulson passes the reins to the next president, the insolvency profession is unlikely to look the same.

Read the original article in Accountancy Age


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