Regulations but no Controls.

The recent press release from the Office of Fair Trading on the mis-selling of IVAs was widely reported but the final paragraph of their press release passed by without mention.

The paragraph is worth quoting in full because it unintentionally underlines the lack of controls over the 1800 or so insolvency practitioners who are the only people entitled, by law, to supervise formal IVAs. The OFT say:

"The Insolvency Service is responsible for authorising and regulating the insolvency profession. An insolvency practitioner (IP) has to be appointed to 'supervise' an IVA. The IP must be authorised by the Secretary of State for Trade and Industry (SoS) directly, or by one of seven professional bodies recognised by the SoS as being competent to do so. IPs must comply with several statutory requirements and follow best practice guidance and ethical guidance. Complaints about IPs considered to be acting unprofessionally, improperly or unethically can be made to the appropriate authorising body. Neither the SoS nor the professional bodies can intervene directly in individual insolvencies or give directions in relation to the conduct of individual cases. The SoS has no power to impose any disciplinary sanction or penalty against an IP but if complaints are found to be justified, the SoS will take them into account when an IP seeks re-authorisation, together with other relevant issues."

So, complaints about insolvency practitioners can be made to the Secretary of State - this is done via the Insolvency Service IP Unit in Birmingham - or to an IP's professional body but neither of them have the power to intervene in individual cases. Not very helpful as debtors are only likely to complain about the conduct of their own cases and the majority will therefore see no point in complaining.

We then find that the OFT have the power to investigate companies mis-selling IVAs but it seems they cannot 'name and shame' those companies because, according to their own press release, that might damage their businesses. The continuing stress and misery they might have caused for debtors along the way is incidental. The fact that they continue to sell IVAs while they read the OFT's warning letter is immaterial.

But it seems the point is also missed that - by law - companies cannot set up IVAs. The companies - even the most incompetent and even those with the ethics of a loan shark - can only act as a front for the insolvency practitioners who are required - again by law - to exercise their independent professional judgement when they recommend an IVA to the courts in the form of their Nominee's Report.

The county courts are also supposed to act as the 'expert supervisory body' in IVAs. There is case law which emphasises this but - with some notable exceptions - the courts do not monitor Nominee's Reports. The IVAs are simply given a reference number and filed away in the court office and another link in the regulatory chain is broken. Unless an interim order is sought, the IVA will not be referred to a judge.

If even a sample percentage of the IVAs filed with the courts were referred to an experienced District Judge the risk of mis-sold IVAs slipping through would be reduced and the protection for debtors would probably improve overnight but the courts seem unable to act on their own initiative. They can only act on complaints made by debtors - and these are extremely rare.

The courts have the power to overturn any action or decision made by the supervisor of an IVA because technically the supervisor is only acting on behalf of the court. Debtors can apply to the County Court that has jurisdiction in their IVA under s.263 of the Insolvency Act but it seems that these applications are rare.

This should not be surprising. Debtors are in a vulnerable position because IPs are given extraordinary powers in personal insolvencies and complaining debtors are always open to abuses of that power and authority. Debtors can be intimidated.

Debtors are also unlikely to be able to afford legal representation. Public (CLS) funding is not normally available in insolvency matters and, if debtors try to represent themselves, they will inevitably be up against a legal team paid for by the insolvency practitioner's insurers.

Complaining through the courts can be a long-winded and expensive lottery that debtors in an IVA cannot afford to lose - but debtors have nowhere else to go.

And - despite all of this - insolvency practitioners continue to claim that are heavily regulated. The specialists in corporate insolvency may be regulated - but those dealing with personal insolvencies are not.

There is no doubt that there are volumes of regulations governing IVAs and IPs. There is the Insolvency Act; the Insolvency Rules; the Insolvency Practitioners Regulations; the Statements of Insolvency Practice and the Insolvency Service technical manuals and notices but, for regulations to work, there also has to be effective controls. Effective laws need both police and prosecutors.

If any insolvency practitioner is recommending 'mis-sold IVAs' then the OFT should also refer their complaints about the companies that employ them (or take kickbacks in the form of commission) to their regulatory body and they should be struck off for professional misconduct ....... and, if they really want to put their house in order, shouldn't the professional bodies be insisting that the OFT provide them with the evidence they need to initiate disciplinary action ?

Or do they really prefer to keep passing the buck ?