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 - 'A case of the tail wagging the dog'

Ed Davey announced last Thursday that the Government is not going to seek to introduce new legislative controls on pre-packs at this time because it is not convinced that the benefit of new legislative controls presently outweighs the overall benefit to business of adhering to the moratorium on regulations affecting micro-businesses.

It's hardly surprising that the announcement has caused a furore and been presented as a victory for the insolvency profession and a massive blow for creditors. Indeed, there was a blog over the weekend that drew attention to my comments and those of Frances Coulson, President of R3, as epitomising the two positions. To be frank, this suggestion misses the point. My anger and frustration is not at the decision not to introduce legislative changes, even though I think they had some merit.

I am not fundamentally opposed to pre-packs and I believe they can be of enormous benefit when used correctly and appropriately. What I am fundamentally opposed to, however, is the abuse of pre-packs and the phoenix situation when the same directors continue what is, to all intents, the same business, but without previously incurred debts, leaving creditors high and dry. Two of the key benefits of the proposed changes were the notice period that would allow creditors to communicate with insolvency practitioners and bring what might be important and relevant information to their attention (a notice period that the Court could agree to be waived in certain circumstances), and the requirement that the IP should make a declaration in advance that he believed the pre-pack to be the appropriate solution in the circumstances; psychologically, so much more powerful than making that statement after the event as part of the SIP16 process.

But perhaps what really frustrates me is the obvious waste of time, resources and effort, and the justification for the decision that has nothing to do with what is right or wrong. A consultation launched in March 2010, and the subject of numerous meetings with stakeholders, papers, and discussion, has now been kicked into the long grass (as I feared it would) with an assertion by Ed Davey that he has asked his officials "to undertake an urgent review in conjunction with stakeholders of how the existing controls on pre-packs have been working.......". Surely that 'urgent review' could and should have been carried out as part of the consultation process? I am all for cutting regulation and red tape, and I am encouraged by the Government's ambitions and success in reducing bureaucracy through the work of the Better Regulation Executive under Lord Curry, but when the regulations argument justifies policy decisions, it feels too much to me like the tail wagging the dog.

I certainly do agree with those who, in the debate since last week, have suggested that suppliers might - and should - pay more attention to credit risk management in order not to be in the frame (or at least to control their exposure) when a pre-pack, or any other insolvency, happens.