Insolvency Code of Ethics, SIPs and Guidance Papers
The insolvency code of ethics was last updated in January 2009. It is issued by the Joint Insolvency Committee (JIC) and is intended to assist insolvency practitioners to meet the obligations expected of them by providing professional and ethical guidance.
The code applies to all insolvency practitioners, who should take steps to ensure that the code is applied in all professional work relating to an insolvency appointment, and to any professional work that may lead to such an insolvency appointment. Although an insolvency appointment will be of the insolvency practitioner personally, rather than his practice, he should ensure that the standards set out in this code are applied to all members of the insolvency team.
An insolvency practitioner is required to comply with the following fundamental principles:
An insolvency practitioner should be straightforward and honest in all professional and business relationships.
An insolvency practitioner should not allow bias, conflict of interest or undue influence of others to override professional or business judgements.
(c) Professional Competence and Due Care
An insolvency practitioner has a continuing duty to maintain professional knowledge and skill at the level required to ensure that a client or employer receives a competent professional service based on current developments in practice, legislation and techniques. An insolvency practitioner should act diligently and in accordance with applicable technical and professional standards when providing professional services.
An insolvency practitioner should respect the confidentiality of information acquired as a result of professional and business relationships and should not disclose any such information to third parties without proper and specific authority unless there is a legal or professional right or duty to disclose. Confidential information acquired as a result of professional and business relationships should not be used for the personal advantage of the insolvency practitioner or third parties.
(e) Professional Behaviour
An insolvency practitioner should comply with relevant laws and regulations and should avoid any action that discredits the profession. Insolvency Practitioners should conduct themselves with courtesy and consideration towards all with whom they come into contact when performing their work.
The framework approach is a method which insolvency practitioners can use to identify actual or potential threats to the fundamental principles and determine whether there are any safeguards that might be available to offset them. The framework approach requires an insolvency practitioner to:
(a) take reasonable steps to identify any threats to compliance with the fundamental principles;
(b) evaluate any such threats; and
(c) respond in an appropriate manner to those threats.
An insolvency practitioner should take reasonable steps to identify the existence of any threats to compliance with the fundamental principles which arise during the course of his professional work.
An insolvency practitioner should take particular care to identify the existence of threats which exist prior to or at the time of taking an insolvency appointment or which, at that stage, it may reasonably be expected might arise during the course of such an insolvency appointment.
In identifying the existence of any threats, an insolvency practitioner should have regard to relationships whereby the practice is held out as being part of a national or an international association.
Many threats fall into one or more of five categories:
a) Self-interest threats: which may occur as a result of the financial or other interests of a practice or an insolvency practitioner or of a close or immediate family member of an individual within the practice;
(b) Self-review threats: which may occur when a previous judgement made by an individual within the practice needs to be re-evaluated by the insolvency practitioner;
(c) Advocacy threats: which may occur when an individual within the practice promotes a position or opinion to the point that subsequent objectivity may be compromised;
(d) Familiarity threats: which may occur when, because of a close relationship, an individual within the practice becomes too sympathetic or antagonistic to the interests of others; and
(e) Intimidation threats: which may occur when an insolvency practitioner may be deterred from acting objectively by threats, actual or perceived.
An insolvency practitioner should take reasonable steps to evaluate any threats to compliance with the fundamental principles that he has identified.
In particular, an insolvency practitioner should consider what a reasonable and informed third party, having knowledge of all relevant information, including the significance of the threat, would conclude to be acceptable.
Having identified and evaluated a threat to the fundamental principles an insolvency practitioner should consider whether there any safeguards that may be available to reduce the threat to an acceptable level. The relevant safeguards will vary depending on the circumstances. Generally safeguards fall into two broad categories. Firstly, safeguards created by the profession, legislation or regulation, and secondly, safeguards in the work environment.
The JIC is a major forum for discussion of issues of concern to the profession and has representatives from each of RPBs and from The Insolvency Service. The Association of Business Recovery Professionals (R3) and the Insolvency Service, Northern Ireland have observer status. It has recently accepted three lay members onto the Committee. The Committee, which first met in December 1999, presently meets four times a year. The Insolvency Service members are the Head of IPPS and the Head of IPU (as Competent Authority)
The Committee grew from one of the recommendations of the insolvency regulation working party. Its mission statement is to:
The Insolvency Practices Council (IPC) was established in 2000 following the recommendations of a report [note 1] published by The Insolvency Regulation Working Party. A conclusion of the report was that external contributions should be allowed to inform the setting of professional and ethical standards for insolvency practitioners. The IPC was created as the forum for this work.
The remit of the council is to examine the ethical and professional standards of the insolvency profession and put proposals and recommendations to those organisations with responsibility for regulation and control of the insolvency profession. The council liaises closely with the JIC (see paragraph 55.32) and is made up of an independent chairman and secretary, five lay members (i.e., those not directly connected with the insolvency profession) and three members of the insolvency profession – who can advise the lay members on technical issues.
The council has, in addition to recommendations on matters relating to the conduct of insolvency practitioners, put recommendations to the Government regarding the investigation of disqualification reports and has also looked at the advice being offered by both commercial and not-for-profit organisations to those in financial difficulty.
Further information regarding the council is available on its own web-site (www.insolvencypractices.org.uk).
The Association of Business Recovery Professionals is better known by its brand name “R3” (which stands for Rescue, Recovery and Renewal). R3 is a professional association for insolvency, business recovery and turnaround specialists and promotes best practice for those involved in the insolvency profession. It operates as a not-for-profit organisation and provides an avenue for debate on issues facing the profession. Membership of the association is not limited to qualified insolvency practitioners and includes those working towards full insolvency practitioner qualification and others involved in the rescue of struggling businesses.
The association has a president, a vice-president, a deputy vice-president and a chief operating officer, and is operated by a council of members. The association operates committees covering areas such as membership, technical, education, small practices and regions.
The association is responsible for drafting Statements of Insolvency Practice (see paragraph 55.35) following commission of the JIC (see paragraph 55.32) and runs training courses and seminars to which insolvency practitioners can subscribe to further their on-going professional development. Membership is available in the following categories:
More information on the Association of Business Recovery Specialists can be found on their website (www.r3.org.uk).
The purpose of Statements of Insolvency Practice (SIPs) is to promote and maintain high standards by setting out required practice and harmonising the approach of insolvency practitioners to particular aspects of insolvency practice. They apply in parallel to the prevailing statutory framework.
SIPs should be read in conjunction with the wider fundamental principles embodied in the insolvency code of ethics and should be applied in accordance with the spirit of that code. A literal interpretation of a SIP may not be appropriate where it would be contrary to the fundamental principles of the code.
SIPs set principles and key compliance standards with which insolvency practitioners are required to comply. Failure to observe the principles and/or maintain the standards set out in a SIP is a matter that may be considered by a practitioner's regulatory authority for the purposes of disciplinary or regulatory action in accordance with that authority’s membership and disciplinary rules.
Insolvency practitioners should evidence their compliance with SIPs and should, therefore, document their strategies and decision making processes appropriately.
SIPs set out required practice, but they are not statements of the law or the obligations imposed by insolvency legislation itself. Where an insolvency practitioner is in doubt about any obligation imposed upon them by a SIP, they should obtain appropriate guidance.
SIPs are issued to insolvency practitioners under procedures agreed between the insolvency regulatory authorities, acting through the JIC.
Insolvency Guidance Papers are issued by the JIC. They are issued to cover areas where it would not be appropriate to impose mandatory standards or methods of work but where the insolvency practitioner could benefit from some additional guidance.