Those who specialise in insolvency law and practice, and restructuring, would no doubt consider they act professionally, however that term may be defined. But in the wider context of all the recognised professions, and the criteria that they meet, there is some doubt that they constitute a profession.
At least this is a threshold issue for a conference in Brisbane in February – Professional Futures Conference: Challenges and opportunities for 21st Century professions – where insolvency is listed as a new and emerging profession – among not only the professions of law and accountancy, but also among doctors, architects, and engineers.
A profession is generally defined as an occupation in a chosen sector based on education and on-going training, remunerated, with a commitment to ethical conduct enforced through regulation. The status and support given a profession call for a commitment by the profession to the public interest.
There is a question whether insolvency practice by liquidators and trustees (IPs), and to an extent lawyers and related professionals, is or should be regarded as a profession. In the similar UK context, Finch and Milman consider not, and best not, saying that many IPs are in general practice as accountants and that there is benefit in their remaining within that regulated environment. IP work is subject to peaks and troughs and a discrete insolvency profession would require full-time focus on insolvency which would
“lead to a thinning of the ranks of IPs, a reduction in the breadth of experience of the average IP and an undesirable narrowing of the range of practitioners available to debtors, creditors or others”.
How accountants assumed the role of IPs, rather than lawyers, is an interesting aspect of commercial history. There were few professional accountants before the 19th century, and a lack of regulation led to much cynicism about their abilities and reputation. What insolvency work was done was largely focused on personal bankruptcy. One bankruptcy judge complained of the
‘ignorant set of men called accountants’
perhaps referring to those with no qualifications, of which there were many. The arrival of the Companies Act of 1862 – ‘the accountant’s friend’ – and major investments in rail and infrastructure brought accounting to the fore with the inevitable collapses. Competition with lawyers was strong, but accountants got the upper hand. Unsubtly
“major insolvency accounting firms let it be known that any law firm which sought to compete with accountants over insolvency work would no longer receive accountants legal work”
hardly a good start to becoming a profession. There was some reluctance of lawyers to get involved anyway in an area seen by them as morally dubious. But there was also competition within accountancy, with the (then) unlicensed IPs taking insolvency work.
Regulation was an early focus with a view to improving the standards and reputation of accountants. In one early case, in 1881, an accountant’s ‘conduct unbecoming’ involved his
‘canvassing by means of postcards for proxies in bankruptcy and liquidation cases’.
The early involvement of accountants has had an impact to the present day, with much insolvency ‘law’ constrained by the commercial and often unreviewable decisions of IPs. In contrast, in the US, where lawyers took hold, the bankruptcy system is subject to close judicial review.
Factors against insolvency being a profession
Coming forward to 2019, here are some reasons why insolvency is not a profession, based on various criteria of a profession.
It is not cohesive: there are several bodies – AIIP, ARITA, TMA, and PIPA, with the lawyers and academics also having separate bodies. Not only are the laws separate, but there are separate government departments, regulators and courts.
There is also a divide within the industry between personal and corporate insolvency (in contrast to the UK and NZ). Regulation and discipline by the bodies is patchy, one trade-off for the status and protection of a profession being the acceptance of self or co-regulation. Co-regulation hardly exists (unlike the UK and NZ), with ARITA saying it is not a regulator, despite recent reforms, rather, it has a focus on compliance with its code. That code is respected but, according to a relevant criterion, should be continually updated as laws and practice change. TMA produced a prompt code when safe harbour laws were introduced. AIIP does not regulate its members, not an uncommon approach in professional bodies, given the inherent conflicts between member support and regulation, but focused on member support and education, and law reform.
And overall, there is no significant collegiality between the insolvency bodies, rather, competition.
It was only in the 1980s that some cohesion of what might become a profession started to develop in Australia, given impetus by the Harmer Report. The Harmer recommendation that there be an ongoing harmonisation of insolvency laws was not heeded; and even now, after the recent harmonisation reforms, indications are that personal and corporate law and practice, and their practitioners, are again going their separate ways.
Law reform submissions are a good indicator, with professions calling for reform in the public interest, despite being against commercial interests; industry bodies or lobby groups tend to more self-interested submissions. In any event, the calls for significant law reform have not been heeded, suggesting a low political profile for IPs, except when things go wrong.
There is no research or data collection by the industry to validate and improve the system in which they claim to produce good results, one comment being that the information made be adverse, again, not an indicator of a profession, or a confident one. English academics have written that insolvency practitioners “are highly secretive and rarely publish any meaningful information about their affairs.”
One factor in assessing a group as profession is not only community perception, but also the group’s perception. Whatever the community thinks – generally poorly, but unjustifiably – those working in insolvency more often refer to their ‘industry’ rather than their profession; that is not mere semantics.
All of these items are relative, compared with other emerging professions, and existing professions, all of which have their own negative features, with which they must deal.
Factors why insolvency is a profession
And there are of course the reasons why insolvency is a profession.
The role of an IP is unique in our legal system and its public and private role puts IPs above lawyers and accountants and auditors in any professional hierarchy. IPs are trained and experienced in their tasks, with parallels with specialist medical practice or legal counsel. Education offerings are very good, professionally, although insolvency has yet to develop as an academic discipline to the extent of the UK or the US, with limited input from IPs themselves. The accounting, tax and economics disciplines give insolvency little attention. Insolvency is increasingly governed by the law, hence the lawyers take the fore in publishing, analysis and presenting.
As to the lawyers, the increasing legal regulation and complexity has led to a comment that
‘an IP does not move without a lawyer by their side’.
In the end, it may be that the conference debate will show that insolvency is not yet a profession, at least for the moment, and perhaps, as Finch and Milman say, that is for the best. The threshold between and industry and a profession is subtle but high. The unmet expectations of an existing or emerging profession, evident in recent inquiries, will have a regressive impact. Attention to addressing the sort of issues raised here would be wise.
Which then leads to some further comments – pending – as to the future of the IPs as a profession, in the face of a number of pressures and likely changes in the market and in the law, and whether it is equipped as a profession, or less so as an industry, to deal with those.
It should be an interesting conference.