UK insolvency review – “better outcomes from insolvency and increased returns to creditors”?

The first and rather glowing report on the operation of the Insolvency (England and Wales) Rules 2016 has been issued by the UK government, showing “better outcomes from insolvency and increased returns to creditors”, such that the “UK’s insolvency regime remains among the best in the world”.  But there nothing much to substantiate these comments.  Australia is to embark on a similar 5 year review.  While we should properly conduct a more thorough review, the outcome will probably be similar.    

This UK review is required under the review framework introduced by s 31 of the Small Business, Enterprise and Employment Act 2015.

According to the Minister for Business, Energy and Corporate Responsibility, Lord Callanan, the Rules came into force in 2017 following a wider effort to streamline the insolvency regime and reduce unnecessary regulation, the ultimate goal of which was to provide better outcomes from insolvency and increased returns to creditors.

The report is said to meet the government’s legal requirement under s 31, “as well as supporting [its] ongoing commitment to ensuring that the UK’s insolvency regime remains among the best in the world”.

Comment and comparison

My interest in this report, as with most insolvency law reform reports and comments, is that it does not actually show that there are “better outcomes from insolvency and increased returns to creditors”.  There is no data to show what creditors receive, how much is spent in order to receive what dividends they might infrequently be paid, what the costs and benefits of the regime are, and who pays for those costs.

This relates to a research project in Australia that is asking for some of those basic items of information, to better inform any law reform.  For example, as we all know, returns to unsecured creditors are exceptional rather than the norm, and that they average under 2c/$, we need to question the attention that IPs are required to give to to creditors under current laws.  We also find that very many debtors and creditors are unable to access the insolvency system because the costs are too high, or it is easy for dishonest corporate debtors to simply fade away, hidden among the tens of thousands of deregistered companies each year.  Insolvency law’s rigid distinction between corporate and personal debt needs softening.  Practitioners are often not paid for all the work required, with their losses recouped from high asset estates.  Many litigation claims are brought by IPs, but to what extent any successful recovery goes to creditors, or to meet the IPs’ remuneration, is not known.  Practitioners also attend to many public interest tasks, properly the role of the state, certainly as to the funding of those tasks.

It seems that while the UK Minister implies that the report has provided “better outcomes from insolvency and increased returns to creditors”, such that the “UK’s insolvency regime remains among the best in the world”, there is nothing much to substantiate these comments. Perhaps, like Australia, little data is kept on the operation of the insolvency regime, despite the quantitative nature of that information.

Returns to creditors are not necessarily the determinant; insolvency serves broader purposes.  But we should at least be able to record and track the costs and financial benefits and outcomes of our respective insolvency regimes.

Australia’s review

Australia is somewhat paralleling the UK experience.  Its Insolvency Law Reform Act (ILRA) 2016, which commenced in 2017, made significant changes to the processes of insolvency, but for purposes largely absent from UK law in that the ILRA sought to align a century’s worth of lack of alignment between the processes of personal and corporate insolvency in Australian law. Some useful changes were made but despite the ILRA, we still have separate laws, regulators, professionals, and ministers for each of personal and corporate insolvency.

The government did however set in place a 5 year review of the operation of those ILRA changes, due in 2022.

With a federal election pending, we will need to await news of progress about the review from the then government.  Something more detailed than that completed in the UK is needed.

Review of IP regulation

A further parallel with the UK is that the ILRA took a particular approach to IP regulation in Australia, though one the UK government, in its own current review of IP regulation, might want to avoid.

That brings me to a paper being presented at INSOL in June 2022 on this topic, following extensive research and consideration of our regimes in Australia, as compared with the UK approach: see INSOL Academics: “Report of findings on the regulation of insolvency practitioners in the UK and Australia”, London, 25 June 2022.

More soon.

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