The million pound fining of an insolvency firm and its administrators by the English accounting body ICAEW illustrates the differences between the UK’s insolvency co-regulatory regime, and a similar scheme soon to be adopted in New Zealand, and that of direct regulation in Australia.
The fine was issued by consent in relation to the acceptance of insolvency appointments in the collapse of electrical goods retailer Comet back in 2012, despite independence issues arising, and in relation to certain aspects of the conduct of the administration.
ICAEW fined Deloitte £925,000, plus £890,000 for ICAEW’s costs, for failings in its client engagement policy which did not comply with ICAEW’s Code of Ethics, along with a severe reprimand. Two of Comet’s administrators were also fined and reprimanded in amounts of £25,000 and £50,000 in relation to aspects of their handling of the administration. These included that they did not create sufficient written contemporaneous records of their independence checks, and records explaining certain steps taken and conclusions reached on matters later coming under scrutiny.
Under the co-regulatory system in the UK, ICAEW is one of the recognised professional bodies designated to both register and regulate its own members. It describes itself as ‘the largest insolvency regulator in the UK … [licensing] over 800 insolvency practitioners (out of a total UK population of 1,600) as a recognised professional body (RPB) under the Insolvency Act 1986’. Regulatory matters arising from its monitoring visits of member practitioners are considered and graded for any regulatory action. Its regulatory and disciplinary committees have an equal or majority number of lay members.
There are four other RPBs that cover the other half of the profession – ACCA, IPA, ICAS and CAI – all overseen by the Insolvency Service.
The Service is in the process of reviewing the current UK regulatory framework, including the professional standards and the ethical code, and deciding whether to consult on a move to a single regulator.
Meanwhile consultation closes on 7 February 2020 in New Zealand on processes and criteria for licensing its new co-regulatory bodies.
For example, in relation to discipline, any approved body must have a sufficiently independent disciplinary and appeals body, and the range of penalties which may be imposed must be sufficiently stringent to address the most serious breaches, and be scaled to ensure proportionality.
The ‘industry’ bodies in Australia have a minimal statutory role, with the government regulators – AFSA and ASIC – themselves directly and in substance regulating insolvency practitioners. Those industry bodies have their own member discipline processes, but these are not overseen by the regulators.
In one case, where there was a claimed lack of independence in practitioners taking an appointment, ARITA followed the findings of what is said was a court’s comprehensive review of the circumstances of the appointment which found no relevant independence concerns.
Courts v professional body decisions
Whether courts would follow professional body discipline decisions, and vice versa, came up in the UK in Re Polly Peck International plc, where there had been open criticism of the practitioners having accepted appointments as administrators in spite of a claimed conflict of interest.
The Court drew a distinction between the interests of the insolvency administration and the guidance given in this case by the ICAEW as the relevant professional body.
The Court drew a distinction between the need for professional bodies to comply with their professional standards and the actual need for the insolvency to be properly administered, saying that the ICAEW
“is, of course, concerned with the integrity and objectivity of its members and has laid down guidelines for the conduct of their professional duties. I am concerned with the interests of the administration”
The Judge went on to say that he could make no possible criticism of the IPs.
Nevertheless, the two administrators were later fined in disciplinary proceedings brought by the ICAEW for accepting the appointment.
 Bodies everywhere — the role of professional bodies in regulating insolvency practitioners  INSLB 94, Murray
 Sisu Capital Fund Ltd & Ors v Tucker & Ors  EWHC 2170 (Ch)