Weekly Blog by Philip King, CEO of the ICM - 'Growing Responsibility'

It's the time of year - just pre-holiday season - when we normally expect to see a flurry of papers and consultations being issued by government to keep us occupied over the summer. This year is no exception and the last week has seen a bulging inbox.

To name but a few BIS has issued a call for views on its Corporate Responsibility paper, and produced a discussion paper entitled 'Transparency & Trust', and the Insolvency Service has published the report from Elaine Kempson's review into Insolvency Practitioner Fees, the terms of reference for the long-heralded review into Pre-pack Administrations, and its Annual Report for 2012-13.

The Institute will of course be considering these and submitting responses in due course but, having spent several hours over the last few days scanning the contents of papers, the longest of which is 89 pages, I do have a few initial thoughts.

The BIS Corporate Responsibility paper is looking primarily at what has more traditionally been called Corporate Social Responsibility (CSR). It seeks to define exactly what CSR is and how it can be encouraged, developed and reported on. One section looks at supply chain management
and I hope one of the issues identified is that of prompt payment and treating suppliers fairly. Given the impact of late payment on suppliers and, as a consequence, the wider economy this seems a very obvious way for businesses to be seen as acting responsibly. Conversely, making life difficult for suppliers and deliberately exploiting them is nothing short of irresponsible.

The BIS Transparency and Trust discussion paper (or perhaps tome is a better descriptor!)  covers a broad range of issues focusing on two primary themes: enhancing the transparency of UK company ownership, and increasing trust in UK business. The latter theme embraces a number of specific areas but includes insolvency through suggested changes to the disqualification of directors regime and the introduction of financial redress for creditors where directors have acted fraudulently or recklessly. I'm also encouraged by the suggestion of education for directors. I've had a long-held view that the ability for people to gain the privilege of limited liability without putting up any capital nor having to demonstrate any understanding of their responsibilities and obligations is unhelpful and leads to wide-ranging issues. The ICM's press release welcoming the discussion can be found here: http://www.icm.org.uk/statement-following-publication-of- transparency-and-trust/

The Transparency & Trust paper which can be found here also refers to the imminent review of pre-packs and the report from the Review into Insolvency Practitioner Fees and we'll await the Insolvency Service's response in due course with interest.

I'm encouraged that the government is looking at these areas. The provision of credit across all sectors always involves trust so the title of this paper, 'Transparency & Trust', puts it squarely in our space and I look forward to hearing the views of ICM members when we go out for their
input and views shortly.

Weekly Blog by Philip King, CEO of the ICM -'Directors must take responsibility for their actions'

I received the report from the House of Commons Business, Innovation and Skills Committee on The Insolvency Service (Sixth Report of Session 2012/2013) recently. In more everyday parlance, this was the report from the Select Committee that met last October and heard evidence from the Insolvency Service, R3, the Insolvency Regulatory Bodies and others. One of the comments in our submission has been somewhat over-stated,  and our words used out of context, but I am particularly pleased at the inclusion of another reference which says: 'The Institute of Credit Management summarised the concerns of many of those who submitted evidence to us when they commented: "We would be greatly concerned if the reductions in budget [of the Insolvency Service] resulted in a degradation or reduction of Disqualification Unit activity. We believe any such dilution of activity would send entirely the wrong message to delinquent directors at a time when corporate insolvencies are likely to increase".'

 

In connection with the disqualification of directors, the report points out that 'disqualifications have halved over the last couple of years………whilst the number of directors disqualified each year has remained relatively stable over the past decade (approximately 1,200 a year), the number of cases of misconduct identified by Insolvency Practitioners in the same period has risen from 3,539 to 5,401…..the disqualification rate has fallen from 45% in 2002-03 to just 21% in 2011-12.'

 

It is widely accepted that the UK is one of the easiest countries in which to start a business, and that's good, but business owners need to show some responsibility in return for the 'veil of incorporation' which limited company status affords them. If a company can be formed with £1 issued capital and the directors have no personal liability, there have to be consequences if they are found to be guilty of misconduct that leaves their creditors out of pocket. Insolvency Practitioners are required to submit a return identifying where they believe misconduct to have occurred and they have the right to expect their report to be acted upon. Currently only 20% of reports are taken forward to disqualification and that's not good enough so I'm delighted that the Report recommends 'that the Department provides the Insolvency Service with sufficient, and if necessary, additional funding to disqualify or sanction all directors who have been found guilty of misconduct.'

 

Let's encourage entrepreneurship and initiative but let's not turn a blind eye on sharp practice that leaves suppliers with bad debts and impacts negatively on their business and the wider economy. I happen to believe there should be a minimum amount of issued capital required to form a limited company so that directors and business owners take their responsibility more seriously but I'll save that argument for another day. In the meantime, let's hope the Select Committee's recommendation is fulfilled. It definitely needs to be.

Weekly Blog by Philip King, CEO of the ICM - 'That was the week that was!'

Firstly, we had the ICM British Credit Awards at the Park Lane, London Hilton on Wednesday last and, from all the feedback I've received so far, it was our best awards event yet, and one of the best the industry has ever seen. Over and above the joy of celebrating with all those who were short-listed for awards, and particularly with the winners, the evening was a triumph with exceptional entertainment from The Three Waiters, and superb hosting by Martin Bayfield. It was great to spend a night in the company of colleagues from across the industry and a reminder of what organisations like the ICM do so well.

 

Secondly, on Thursday, Michael Gove - the Education Minister - announced that the new draft National Curriculum for England will see financial education embedded in both mathematics and in citizenship education, making financial capability a statutory part of the curriculum for the first time ever.

 

Specifically, the new programme of study for Citizenship includes the functions and uses of money, the importance of personal budgeting, money management and a range of financial products and services in Key Stage 3, and wages, taxes, credit, debt, financial risk and a range of more sophisticated financial products and services in Key Stage 4.

 

This announcement follows a prolonged pfeg (Personal Finance Education Group) campaign supported by the All Parliamentary Group on Financial Education (chaired by my local MP, Justin Tomlinson) and by hundreds of MPs, teachers, parents, and professional bodies including the ICM. It is a triumph for pfeg which coincidentally was the chosen charity for our Awards Dinner and will benefit from the many financial pledges made on the night in its mission to support education providers in giving children and young people the skills, knowledge and confidence to manage money.

 

As I write these words, more pledge cards are still being received so we do not have a final figure of commitments made but, from our work with pfeg in recent years, I am confident that it will all be put to good use and will help to ensure that the next generation is better equipped to deal with personal finance and debt than the current generation.

 

On that subject, the ICM Think Tank this week focused on the role of the advice sector, and particularly the work of StepChange Debt Charity that has been helping people break free from problem debt for 20 years. It was useful for the group of senior executives from across the credit industry to learn more about the charity's mission and work, and to discuss the role of the advice sector and its relationships with the creditor community.

 

Finally, it was good to see the publication by the Insolvency Service of its Debt Management Plan Protocol which aims to protect and promote the needs and best interests of consumers who take out DMPs. In particular, it should help to ensure there is a greater level of consistency and transparency and weed out some of the unscrupulous operators who are conspiring to give the sector a bad name.

 

All in all a good week then!

 

Weekly Blog by Philip King, CEO of the ICM - 'Shooting the phoenix'

I sat on a panel at an Insolvency for Creditors event last week and there was, not surprisingly, some vigorous discussion about Pre-Pack Administrations.  There were equally strong feelings expressed at the ICM Think Tank this week when the subject came up again, and I expect to hear similarly robust views when I attend a Round Table chaired by Norman Lamb, the Minister responsible for the Insolvency Service (IS), this week.

Pre-Packs are an emotive subject but what seems to raise temperatures even higher is the issue of phoenix companies where the same directors seem to be able to acquire their previous business for a very low valuation and continue running it – often with only a slightly varied name – but without the burden of previous debts.  Often they leave unsecured creditors with a legacy of unpaid debt and the emotional reaction can hardly be a surprise.

Two sentiments were expressed at last week's event.  Firstly, Insolvency Practitioners need more power to be able to take action against directors who have clearly abused the privilege of limited liability and, secondly, the Insolvency Service should disqualify more directors.  Some in the audience were probably surprised to hear that 1,200 directors were disqualified last year and, of these, 125 were banned from holding a directorship for 10 years or more.  I accept it could be argued that these numbers should be higher but I am more concerned that there was little awareness of them.  If the credit professionals attending were surprised then so would current company directors be and the disqualification activity cannot be acting sufficiently as a deterrent.

Details of recent Insolvency Service press releases can be found here http://insolvency.presscentre.com/ and I would urge the IS do more to promote their disqualification activity.  Plenty more could and should be done, but getting this message out would be a good start.

Weekly Blog by Philip King, CEO of the ICM - 'we have to do more than just watch'

The Insolvency Service consultation on reforming the regulatory framework for Insolvency Practitioners has been much on my mind lately.

Before Easter, I had a number of meetings with insolvency organisations and the Insolvency Service, and the survey of ICM Members prompted a tremendous reaction; this week I've been working on the ICM's response to proposals that could significantly impact credit professionals.

The consultation has three elements: the establishment of an independent complaints body; setting clear objectives for the regulatory regime; and detailed amendments to particular regulations.

One of the key and overriding objectives is to better protect the interests of unsecured creditors. The ICM will be supporting the idea of a new complaints body and other measures to improve and enhance transparency, and it will be encouraging clearer objectives and a regime that achieves the best possible outcomes for those losing money when a customer goes bust.

There is, however, a fundamental issue that needs to be addressed: too many credit professionals fail to engage in the insolvency process. Their position appears to be that they've already suffered a bad debt so why spend more time and effort in what follows? Whereas I understand such a position when there are conflicting priorities - and it makes sense to focus on tomorrow's opportunities rather than yesterday's problems - if we don't play our part in the insolvency, we can't really complain about the outcome and the activity of the Insolvency Professional who is acting on our behalf, can we?

Visit http://www.icm.org.uk/icm-consultancy/government-consultation to view our consultation responses