What is the Government Doing About Insolvency Bonding?

Insolvency practitioners are required by law to take out a bond to provide appropriate levels of security to cover any losses as a result of fraud or dishonesty on their part. Stakeholders have told the UK government that current arrangements are inflexible and prescriptive and fail to protect creditors.

Following the government’s publication of plans to revise bonding requirements for the insolvency profession, Adrian Hyde, President of insolvency and restructuring trade body R3, has this to say to Finance Monthly:

“With the insolvency and restructuring profession increasingly concerned about rapidly rising premiums for smaller firms and the perceived adversarial nature of the bond claim process, the government’s call for evidence into the issue was timely and necessary.

“Insolvency practitioner bonding is there to ensure creditors are protected if things go wrong, but unaffordable premiums could force small firms out of the market. Without a diverse insolvency profession, the UK insolvency framework’s ability to rescue jobs and businesses and return money effectively to creditors will be compromised. This will have a knock-on effect for UK plc.”

Adrian Hyde adds: “It’s very important for the government to follow up this call for evidence with further research into the market: empirical evidence is needed to shed more light on the issues that have been identified. There are some fundamental questions that need to be resolved, including whether bonding is the right way to protect creditors in the first place.

“One step that can be taken in the short-term is the development of a claims management protocol. While this would not deal with some deep-seated issues with the current legislation, a protocol would help improve communication and transparency and would simplify the claims process for all parties.

“R3 has worked closely with insolvency practitioners, creditors, and insurers on this matter and we look forward to continuing this work and working with the government to find a practical solution to concerns over the coming months.”