Official Report: Minutes of Evidence

The Deputy Chairperson (Mr Middleton): I welcome Lyn and Antoinette. We welcome your input. I will hand over to you for a short update and presentation, and we will then open it up to members for questions. You are welcome.

Ms Lyn Green (Insolvency Practitioners Association): Do you want to go first?

Ms Antoinette Thorpe (Insolvency Practitioners Association): No. Go ahead, Lyn, please.

Ms Green: I am director of policy and regulation at the Insolvency Practitioners Association (IPA). I am an insolvency practitioner (IP) myself and was in practice for many years. We are a regulator of insolvency practitioners across the whole UK, including Northern Ireland. From a regulatory point of view, since the changes to the England and Wales legislation in 2016, we have sought to enforce that and have monitored and regulated our IPs for that. Therefore, we are well placed to identify any issues from the introduction of the rules in England and Wales because the proposed changes here mirror those to a large degree. From our perspective, we are able to give you some insight into how it is operated over in England and Wales. I am here today to help you to understand how it has worked in practice and to see whether there might be any challenges if you introduce it over here.

Ms Thorpe: I am also a member of the board of the Insolvency Practitioners Association, and I am a practising, licensed insolvency practitioner in Northern Ireland. Most members will have read the paper and will know that I have spent many years working in England and a short time, in my gap year, in Scotland. As Lyn said, we have a broad perspective of the changes that have been enacted in the England and Wales framework. Being on the other side and working in practice in Northern Ireland, I see the impact of not having the parity and the harmony of the same rules.

Apart from taking the insolvency practitioner perspective and the regulatory perspective, I have a mission, I guess, from the view of working on the ground on a day-to-day basis within the two sets of frameworks and the difficulty that that poses. Furthermore, as I said in the paper, having the amendments brought into practice will make a difference for every stakeholder and not just the IPs.

Again, I am here today to help you to understand that and to reflect on some of the comments that other attendees have made in previous Committee sessions on the changes that are to be made. It is not just necessary; it is logical, and it is working well in the England and Wales framework.

The Deputy Chairperson (Mr Middleton): Thank you. Would you mind taking a bit of time to take us through the paper for the benefit of members?

Ms Thorpe: First, the essence and the tone will show that we are very much encouraging the Committee to enact the Bill and support the changes. Lyn and I, along with many other individuals working in the IPA and in day-to-day practice, know that, if you work in England or Northern Ireland but take Northern Ireland cases, you come up against the issue daily. The delay in bringing the two sets of legislation in line over the past few years has caused problems in that regard. Therefore, we are pleased to be able to provide the evidence and support the enactment of the Bill.

The core of our support rests on the fact that the changes will streamline the administration on a day-to-day basis in insolvency cases. Enhancing creditor return sounds like a big delivery point, but, in many cases, the pot of money available for creditors will be impacted on by the costs of that administration. Therefore, the efficiency and effectiveness of the rules that we have to abide by will reduce those costs. Naturally, the pot of money available for creditors will be a bit more buoyant and will, hopefully, result in more recovery, which, in essence, is the point of insolvency a lot of the time. It is not just about terminating and tidying up when a business fails; there is also recovery and reorganisation, whether it is an indebted individual or a business that has basically come to the end of its life. It is important that insolvency practitioners and other stakeholders — solicitors, barristers, regulators and everybody who works in the framework — have a set of rules that will allow for efficiency and effectiveness, which are the hallmarks of a well-run framework, be it in England and Wales or in Northern Ireland. Therefore, streamlining and enhancing the return with the legislative harmony that it will bring is a logical step.

I used the word "de-bureaucratising" in the paper. Bureaucracy is something that we all have to deal with in our day-to-day jobs, so anything that we can do to take the unnecessary red tape out of procedures is a welcome change in any organisation or framework.

I will speak to the key changes that will make the biggest difference. The pandemic taught us all about the need to be able to move quickly, to change and to be flexible in how we do business. It makes sense, therefore, that, in a legislative framework where we deal with the failure of business and the impact of debt, that framework also has to be flexible and able to move quickly to keep pace with the business society that we work in. Why would anybody object to being able to use digital, remote or electronic means of communication in this day and age? That change seems to be logical. It is inconsequential to everybody else outside this room but extremely important to us working within the framework when we do not have the opportunity to work with digital or virtual means. That is an extremely important aspect of the changes.

I spoke about cost, and that is one of the areas where costs will be reduced. If I am working on a day-to-day basis on a case in Northern Ireland, I have to send everything out in the post. I still have to use a lot of paper, which takes time and costs more money. In the alternative arrangements, being able to bring stakeholders into the administration via Zoom or Teams meetings or by email — having all that at our disposal, which you would have in any other organisation — is a bit of a no-brainer, but it is also a lot cheaper in not having to fork out money and time as in the current situation. Most businesses these days operate using all the virtual tools that we have available to us, so it makes sense that we can do that as well.

I have already commented on the speed of administration, and I will not dwell on that. It is obvious to everybody in the room who works in administration or bureaucracy that taking that away is a great step.

Previous attendees at the Committee commented on specific changes such as removing the requirement for a statement of affairs in bankruptcy, and there were concerns about that. Working in practice on a day-to-day basis in Northern Ireland and having experienced the impact of the changes in England and Wales, we definitely do not see that being an issue. The questionnaire that is issued by the Insolvency Service to a bankrupt at the commencement of a bankruptcy would, in my opinion and in the opinion of most insolvency practitioners, far outweigh the benefit of a statement of affairs. It would give you far more information and much more intel to go on about what is going on in a bankrupt's affairs. In some cases, a statement of affairs would certainly not tell you as much. Therefore, removing that as a mandatory requirement is of no real consequence. We appreciate that our colleagues in the Law Society had concerns about some of the legal aspects of that. Their concerns were noted, but, in practice, it really will not have much of an impact. The Insolvency Service, which sees the bankrupt on a day-to-day basis, has developed the questionnaire that it uses and that will effectively replace the statement of affairs quite extensively to ensure that it gives us what we need.

The other change that is essential will give practitioners the power to assign claims to third parties — a power that is not there at the minute. There have been times when I have been appointed to a case where I could see that there had very much been conduct by directors that should be pursued and that there should be recovery for creditors who lost out because of that conduct but have not been able to pursue it because of lack of funds. To be able to pursue some of those actions is very important. In the England and Wales framework, that is a day-to-day occurrence. It brings the accountability that we all need to make sure that, where there has been conduct unfit that led to losses or there is culpability to be pursued, we have the toolkit that allows us to do that. Unfortunately, it is usually lack of funding that prevents us from doing it, so that is a very important change. Concerns were raised previously that there is no market here for that type of assignment. I suggest that that may be because we do not have the rules to allow us to do it. The market will very much develop once the rules change, so that is not an issue.

More minor points, which, I think, have not been discussed at Committee Stage, include having more access to what is called the "prescribed part". The body of creditors involved in insolvency and the different classes of creditors range from those with security to those without security, who are at the end of the queue when it comes to any recoveries being doled out. Having access to the prescribed part element may give them the opportunity to get some money back in an insolvency, because they will benefit from a small section of money that is set aside from a creditor with what is called a "floating charge". Unsecured creditors are usually the most exposed in any insolvency, so giving them that element, even if there is only a small possibility of accessing a small pot of money, means that there will be some recovery. In a big case, that could be a significant fund. That is an important change.

Consistency with the regime in England and Wales is essential, whether a case is small or big. We have day-to-day expertise in how the rules and the amendments that were brought in in England and Wales operate. We have had quite a few years of running with those changes, and Lyn and I, from the insolvency practitioner's and the IPA's point of view, remind everybody that a review of the rules is ongoing all the time. The Insolvency Service has committed to reviewing aspects of the changes that may not be working as well as they should and that may require further tweaking, so we encourage the Committee to take account of the paper that was written as well. It would be unfortunate to take all this time and effort to enact the amendment Bill, only to have to change it again when further tweaks that, we believe, are imminent are made to the law and the rules as they operate in England and Wales.

I see you looking at one another. Were you not aware of that paper?

The Deputy Chairperson (Mr Middleton): I was not, but the Clerk may have seen it.

The Committee Clerk: No. I was not aware of it.

Ms Green: We can send you the link.

Ms Thorpe: We will send you a copy of the paper.

The Deputy Chairperson (Mr Middleton): That would be useful. That is why it is beneficial for us to have you here.

Ms Thorpe: Exactly. We are delighted to bring those points, because, with that work going on in parallel with the work being done here, it is important that there is harmony and that, if you are going to make changes, you make them all now instead of having to come back in another year and take up an awful lot more of the Committee's time to make tweaks. It also reflects the fact that the rules — we call them "laws" — have been amended and are working quite well in England and Wales but are constantly under review. It is not just one and done but, rather, a constant review, and changes will be made where necessary if things are not working so well.

There was quite a bit of discussion at previous Committee meetings about one of the other significant changes in corporate insolvency about liquidations in particular, where "deemed consent" —- you will have heard the phrase — is being brought in. We want to make the point, again because of our intimate knowledge of all the insolvency law, that deemed consent is an alternative. In making the changes, we are simply moving away from the mandatory holding of physical creditor meetings. Deemed consent does not replace the ability to have physical meetings; rather, we now have the option of having a physical meeting, a virtual meeting, a meeting by correspondence or a resolution by correspondence. The change brings us some alternatives, and deemed consent is an alternative. It will not be used in every case, and its use will not be appropriate in every case. In fact, the practice of deemed consent is, in itself, contained by a number of thresholds and circumstances that prescribe how it can be used. As an insolvency practitioner working in both jurisdictions, I can tell you that it is very much used only in specific cases where there will be absolutely no assets, no money and no need to involve creditors to make the decision. In effect, it really is used only when you want to become appointed, rather than having to issue an awful lot of paperwork and have an awful lot of meetings simply to be appointed to a case where the directors are funding your appointment, there is no money in the company, and there is an awful lot of cost.

There are times when I speak to a director in Northern Ireland and others when I speak to a director in the jurisdiction of England and Wales. I was speaking to a director yesterday who is facing a petition in the High Court, and I was explaining the costs. Unfortunately, appointing me as a voluntary liquidator involves an element of cost about which I can do nothing, because of the current rules in Northern Ireland and the steps that I have to take so that someone can appoint me.

In England, I can practise what is called "deemed consent" and be appointed virtually, speedily and without any objection. That process still allows creditors to object, and they can still demand that a physical meeting be called. Concerns were raised that deemed consent was giving IPs far too much leverage and far too much discretion. There is still a process to follow, however. I am an insolvency practitioner and a member of the IPA, and everything that we do is closely governed and monitored. The use of the deemed consent procedure gives us the speed to deal with cases that do not require all the red tape of appointment. If we were using the procedure inappropriately, however, we would be brought to account for that very quickly.

I will make a final point about deemed consent. Most insolvency practitioners do not want to use it, because we want creditor involvement in order to vote on resolutions, particularly as one of the most important resolutions can often be our fee. We need creditors to say yea or nay to the fee that we want to be paid for doing the job. We certainly cannot do that through a deemed consent process, nor can we get resolutions approved. In truth, most insolvency practitioners would opt for a meeting in which voting will take place and resolutions will be passed. The concerns about deemed consent are noted, but they really are not that extravagant. I just want to make the point that deemed consent is an option. It is not the only route to follow. The changes are giving us a series of options and alternatives, which is important to have.

The final point that I want to make concerns the efficiency with which practitioners can be monitored. The fact that the regulatory body monitors and governs IPs who are working in two jurisdictions with different sets of laws means that the process is prone to difficulties. Moreover, for practitioners, it is prone to error, which brings us back to the cost issues. A practitioner in England may fall foul of missing something that is in legislation here and thus make errors that cost more time and money to fix. Having a streamlined set of procedures that mirror those in England and Wales would stop all that from happening.

In closing, I will say that, in the business element of society, the hallmarks of a well-run and well-governed framework are that it is effective and efficient and, more important, that it is contemporary and reflects the society in which business runs. It therefore stands to reason that the framework that comes into play when things go wrong in business or in an individual's commercial life should be efficient, effective and reflective of the contemporary society in which we live. The digital changes, as well as the speed that the Bill will afford us in day-to-day practice, will bring the business and the insolvency sectors together and reflect the contemporary Northern Ireland in which we all live. We are not saying, "This works in England and Wales, so we should it have it here". It is not about that; it is about the fact that the business frameworks and the insolvency frameworks should reflect those processes.

All stakeholders, not just insolvency practitioners, will urge the Committee to bring the Bill towards enactment as quickly as possible. As members know, the Insolvency Practitioners Association roadshow is taking place today. We are grateful for the change to the schedule so that we could be here and then also be there. We hope to be able to bring some good news back to the IPA. Year-on-year, the Insolvency Practitioners Association works incredibly hard with what is a small group of insolvency practitioners here, but we have quite a loud voice in the insolvency regime, as Lyn will attest to.

The institutional speakers at the roadshow ask the same question every year, which is this: when will we see the changes made? It is great that, this year, the regulators and the Insolvency Service, which will speak later, will hopefully be able to give a positive account of today and say that we are almost there. That is it. I am happy to take any questions.

The Deputy Chairperson (Mr Middleton): Thank you very much. That was really insightful and very useful. You have already answered some of the questions that I had down to ask. We can certainly follow up on them, particularly as they relate to the work in England and Wales and the review piece.

I have one question. I do not know whether you heard the evidence last week from the Bar of Northern Ireland.

Ms Thorpe: We did.

The Deputy Chairperson (Mr Middleton): The representative from the Bar suggested that changes might be needed to how the creditors of undisputed debts are treated. He said that, in England and Wales, an office holder can present a statutory demand within 21 days, whereas, in Northern Ireland, a court judgement is required. Can you speak to whether you have concerns about that issue? How it could be dealt with in the Bill?

Ms Thorpe: Yes. I was speaking to colleagues about the comments made last week, and we watched the session back. William Gowdy KC from the Bar of Northern Ireland made a lot of comments about that. His point — my point is the same — was that the legislation is already there for the process. If you are owed money and have tried all recovery methods, a statutory demand is the tool available to you. If you are owed money at a certain threshold, you can issue a statutory demand, and the debtor, be it a company or an individual, is given a time period, and not just to pay the debt, so I will correct some of the comments that were made last week. When it comes to the 21 days, yes, the solution will be to pay the debt and make it go away, but you could also secure the debt or come to an agreement to repay it as a solution or as a way of dealing with the statutory demand. I will therefore correct the point that it is not just a case of having 21 days to pay the debt or else; you have 21 days in which to deal with the matter. That is the point of the statutory demand. Bringing statute into it usually means that everything else has been tried, whereas, in England and Wales, there will be collection procedures — perhaps court judgements — because the court is a bit more accessible. There will be bailiffs and all sorts of collection procedures. A statutory demand is often the last resort and brings the whole process of chasing and debt collection to an end, because you have 21 days in which to deal with it, whether that involves securing the debt, paying it or negotiating an outcome so that the creditor will be happy not to move on to the next stage.

William said last week that the legislation is there for that process, but what has happened in Northern Ireland is more of a practice direction. Normally, the stage after statutory demand is that the holder of the statutory demand — the creditor — has four months in which to decide to wind up the company or to petition for the person's bankruptcy. Those are the two outcomes that are available. William was saying that we cannot do that in Northern Ireland, but it is more of a practice rather than in legislation. The changes need to be made in order to line up the process and make it succinct, without any middle bit that we have to follow for the petition. As I said, the law is already written for that, but that is just the practice direction day-to-day. There have been some local changes made to that process, but they are court changes really.

The Deputy Chairperson (Mr Middleton): Thank you for that. Only one member has indicated to ask a question so far, and that is Sinéad, who is online.

Ms McLaughlin: Thank you very much, Antoinette and Lyn, for your presentation. It has been really helpful.

I have a quick question about something that I did not really catch. You said that a review of the legislation takes place in England and Wales regularly and that tweaks are being considered at the moment. Is there a time frame for any changes that may be coming forward?

Ms Thorpe: Lyn will pick up on that.

Ms Green: As part of the introduction of the changes to the rules in England and Wales, the Insolvency Service committed to reviewing the legislation every five years. Having an ongoing review was part of the reason for its introduction in the first place. I do not know whether you will have a similar ongoing review process here. The Insolvency Service asks for evidence and for people's views on how the legislation is working and then produces a report that summarises the concerns raised and points made. That report is published. In the document, the Insolvency Service has committed to making changes, particularly to the creditors' voluntary liquidation (CVL) regime. It has taken on board the comments of the people who operate the legislation in practice and of the regulators and committed to making changes, but, of course, it does not say when the changes will be made, because it is dependent on parliamentary time etc. Some of the suggested changes may require changes to be made to primary legislation, but that is unlikely. The Insolvency Service may be able to make tweaks in the background, but, again, it does not commit to a particular time frame; it simply says, "We're going to look at this, and we're going to consider changes". The report is a useful document, because it sets out some of the changes that had unintended consequences when used in practice. It is those kinds of tweaks that the Insolvency Service are looking to make, particularly to the CVL process.

Ms McLaughlin: That is helpful. We need to know the legislation is up to date and not simply absorbing but reflecting any change of circumstances.

Antoinette, that has got me thinking about the increased benefit of alignment and about how businesses and people operate in Northern Ireland on a cross-border basis. Have you any views on how IPs should operate in that context from which we can learn?

Ms Green: As a regulator, we have made sure that IPs in England and Wales have implemented the changes properly and complied fully. Have we seen any evidence of their failing to comply in the past few years? The answer is no. Generally speaking, the IPs in England and Wales coped well with the changes, without any regulatory action being required. As part of the process that we introduced for the IPA in 2016, we did a lot of education and training of IPs there. We rolled out training across the country to make sure that IPs were prepared for the changes and understood what would be required of them. From an IPA perspective, we would like to do the same in Northern Ireland. I appreciate that there will be some IPs in Northern Ireland who do cross-border work and thus work in both jurisdictions, but, equally, there will be IPs who do not. We do not want you to introduce the changes and then say, "There you are. Off you go. Get on with it". From a regulatory point of view, we want people to be compliant. We want the changes to mean that we have effective and efficient regulation, and part of that involves education and training. We would like to work closely with the IPs in Northern Ireland to help them with the integration and implementation of the changes.

Ms Thorpe: There must be confidence among practitioners about the changes, as there had to be in England and Wales. There was quite a preamble and lead-in time before the changes took effect. When they were implemented, the IPA, as the regulatory body, as well as its members, took a great deal of time to learn about the changes and make sure that there was full confidence in and full understanding of them. Initially, there were hiccups, as there will be in any organisation when there is significant change in how people practise, and lot of learning was taken from that. When the changes are implemented here, which, hopefully, will be in the near future, we suggest that the same process be followed: outline what the changes are to be; outline specifically what the pitfalls may be of moving towards making the changes; and, as we have done today, underline the benefits of quickly getting to grips with the changes.

There are practitioners in Northern Ireland who work exclusively in Northern Ireland and do not necessarily take cases in both jurisdictions. Training will be incredibly important for them. As a practitioner with a foot in both jurisdictions, however, I would very much want to put myself through an awful lot of training to make sure that so that I can work effectively and so that the regulators and lawmakers can be sure that the practitioners who are operating within the framework daily know what we are doing. Administrative gaps cause non-compliance all the time. Equally, the only risk from changing all of that administration would be the risk of making mistakes that we have learnt from the other regime.

Ms McLaughlin: It has come through in all the evidence that we have received that it is so important that IPs get a high degree of training on any new framework. Thank you very much. That has been helpful.

Mr Buckley: The Law Society also indicated in its submission that there is a need for safeguards for creditor inclusivity in digital processes, where creditors who do not have digital assets are concerned. Does the IPA have any concerns about that?

Ms Thorpe: Again, having practised in the alternate regime, we noted that point from last week's evidence session. Using a digital toolkit is an oddity when taking a case. To inform creditors or a pool of stakeholders that an insolvency is happening, a meeting is happening or a decision is to be taken, you usually have to write to them in some way to make sure that they know where to go to find the digital tools to use. There is always a communication process involved. Insolvency practitioners are required to take every step possible to make sure that they have informed everybody who will be affected by the insolvency or by the process that is about to be followed. There is a heavy penalty for not complying with that ethical duty. We have to act with a great deal of independence and objectivity. It is the essence of what we do through our code of ethics, but it is also what we do every day. We have to make sure that all stakeholders are involved and have had the opportunity either to vote or to participate. That is an essential part of what we are monitored on.

Mr Buckley: There will always be that mix of digital and traditional forms. There has to be.

Ms Thorpe: There has to be. If I were to invite you all to a virtual meeting of creditors, I would have to communicate with you somehow, be that email or in writing, to give you the details. In practice, the toolkit would involve writing to you or emailing you to give you access to a website or a portal with a password and your own PIN so that you can access documents or attend a meeting. In the same way, we have colleagues attending the roadshow today, and all received a meeting link. It is the same thing.

Mr Buckley: The safeguard is that everybody will have the ability to access both forms.

Ms Thorpe: Yes, and, if you were to see any of the communications that we send out day-to-day, be that in England and Wales or in Northern Ireland, you would know that every letter that I send out will have links for those who want to look at, say, a 48-page document about rules. Every letter will also state that, if people want a hard copy of that document, they can ring us. Every piece of correspondence will state that, because we want to make sure that everyone is aware. Sometimes, it is a dull set of rules, so, if we can simplify them for anyone, we will. Our job is to make sure that everybody is involved.

Mr Buckley: Thank you.

Ms Green: I will just add that, in practice, an insolvency practitioner will see how the company has previously communicated with the creditors. For example, was it used to communicating electronically? Did the creditors want information by, for example, email? The insolvency practitioner, as a starting point, will see how the company engaged with its creditors in order to determine what the best form of communication is, be that by digital means or by post.

Ms Thorpe: That brings us to a final point about the changes that the Bill will make. Parallel to the Bill itself, with its 96 provisions that change existing legislation, there is a huge amount of practice guidance and regulation from our regulatory body, as well as other elements of the framework, involved. Whether it comes from our regulatory body's day-to-day monitoring or from elsewhere, there is tons of practice guidance on how to do the jobs. An awful lot of it will be about making sure that IPs take every step to make sure that everybody is included. They would certainly be held to account if you did not do so. They would be asked, "Why didn't you include this creditor or that person? Why didn't you go to every length to make sure that they were involved?".

Mr Buckley: Thank you.

The Deputy Chairperson (Mr Middleton): Thank you for taking the time to come along to the Committee today. I wish you well with your event later this morning. We very much value your input and your answers to our questions.

Ms Thorpe: Thank you.