Despite being on our Blog, this article should probably carry a health warning that it arises from Burch’s overexcited brain! I made the mistake recently of doing some thinking during my quiet moments, of which there are few. Two thoughts came to mind that might be worth further discussion/consideration within the profession.
Referrals
The Ethical Code prevents the payment of commissions for insolvency work but IPs are allowed to pay work to others, who may happen to be the referral source, for work done, as long as it is evidenced and shown to reduce work that the IP would otherwise have done. The most commonly disclosed example of this is when some of the nominee’s fee in an IVA is paid to a referral source that provided some of the initial fact find. In corporate cases, the approach tends to be to pay the referral source for work done in helping to prepare the SA, which is just as fully disclosed and transparent, or to provide the referral source with work on tax calculations or legal action during the appointment, which is less so. Every now and again rumours surface about other more inventive and less transparent payments being made, but these are rarely substantiated.
I just wonder whether, instead of continuing the circular argument about whether we should have a single regulator, there would not be some benefit in opening a discussion about whether the profession should now be allowed to pay properly disclosed commissions for referrals. I can see several dangers, such as a rise in marketing direct to distressed debtors and a potential bidding war as certain firms try to boost their turnover. However, I can also see that it would take away some of the finger pointing in the profession, as referral payments become more transparent and allegations of “back-handers” are dealt with. In time, I also suspect that the initial marketing flurry would die down and costs would level off as market forces arrive at a fair figure.
I know of one IP who suggested this some time ago and was vilified, but at the risk of getting a few backs up, I thought it was appropriate to raise the question again particularly as it is something that other professionals, such as solicitors can already do at present.
Disqualification
We often hear IPs complain that DU turns down too many cases. There is clearly a significant gap between what an IP thinks is misconduct and what DU can actually run with. This is often caused by IPs taking a scattergun approach to allegations of unfitness or providing insufficient evidence because of limited funds in the estate. However, there are also too many cases where good, if not perfect, allegations are turned down, apparently because they are not guaranteed to succeed or require more investigation than DU has resources to meet.
This led me to wonder whether the legislation could be amended to give IPs an opportunity to pursue disqualification proceedings direct in marginal cases. It should be possible for an IP, who has most information available, to make a reasoned decision with his legal advisors about the potential for a successful disqualification action. These would not necessarily be cases that meet the higher level “public interest” criteria, but would be cases where the creditors want something done and there is the potential for a costs or liability order to be recovered after successful proceedings. Those cases that meet the public interest criteria or cannot be funded from estate resources or a potential costs or liability order could still be referred to DU. However there is a lot to be said for releasing the decision in many cases from the tight requirements imposed by the public interest and allowing decisions to be made on the basis that conduct that most normal people consider unfit should not go unpunished.
There you go…cage rattled…neck stuck out…sorry!
