Government proposes strengthening insolvency regulation

Across the UK, businesses have grappled with the financial impact caused by the Covid-19 pandemic. One response was providing financial support with temporary measures introduced to support businesses from insolvency. 

Due to the pandemic, companies in financial distress were protected from creditor action from June 2020 through the Corporate Insolvency and Governance Act 2020, with measures phased out from 1 October 2021.

In addition to temporary measures relating to the pandemic, another area of government focus has been reviewing insolvency law and regulation - with a Call for Evidence on the review of the insolvency regulatory landscape issued in July 2019.

The consultation document 'The future of insolvency regulation' was published on 21 December 2021.

The future of insolvency regulation

The foreword to the government's consultation highlights that in the 35 years since the Insolvency Act 1986, the current framework has not kept pace with developments in the insolvency market. 

Insolvency Practitioners in the UK are currently regulated through a mixture of legislation and self-regulation. 

The Insolvency Service found that the current framework is disproportionately complex, with four professional bodies and the government all involved in regulating fewer than 1,600 individuals.

The consultation document highlights that there has been a shift in how the insolvency market operates, with an increase in Insolvency Practitioners being employed by larger firms rather than practitioners working for themselves or within small practices. 

As a result, the existing regulatory scope does not extend to firms offering insolvency services, which can lead to tensions between the firm's commercial interests and the statutory responsibilities of the practitioner.

The key proposals to strengthen the regulatory regime

The government sets out ambitious proposals to modernise the existing regulatory framework by creating a single independent government regulator within the Insolvency Service and introducing the regulation of firms that provide insolvency services.

Proposed changes set out in the consultation include:

• Establishing a single independent regulator to sit within the Insolvency Service.
• Extending regulation to firms that offer insolvency services, as the current regime only covers individual insolvency practitioners
• Creating a public register of all individuals and firms that offer insolvency services
• Creating a system of compensation and redress

The government believes the proposals set out in this consultation will strengthen the regulatory framework and provide better outcomes for those affected by insolvency, and improve confidence in the insolvency profession as a whole.

The full consultation for reforming insolvency regulation can be found here

The consultation will run until 25 March 2022.

Note: The proposed changes would apply to England, Scotland and Wales. 

Contact our insolvency solicitors

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