FOUNDATION CERTIFICATE IN
INTERNATIONAL INSOLVENCY
LAW
Module 9 Guidance Text
Ethics and Professional Practice
2023 / 2024
Page 1
CONTENTS
1. Introduction to Ethics and Professional Practice ................................ 1
2. Aims and Outcomes of this Module ..................................................... 1
3. An Introduction to Ethics and Professional Practice .......................... 2
4. Codes of Conduct ................................................................................. 12
5. The Principles ........................................................................................ 13
5.1 Introduction ........................................................................................... 13
5.2 Integrity .................................................................................................. 14
5.3 Objectivity, Independence and Impartiality ..................................... 16
5.4 Professional / Technical Competence ............................................... 29
5.5 Professional Behaviour......................................................................... 32
5.6 Remuneration and Disbursements ..................................................... 36
5.7 Practice Management .......................................................................... 46
6. Conclusion.............................................................................................. 49
Appendix A: Feedback on Self-Assessment Questions .................. 51
Appendix B: Glossary of Terms .......................................................... 58
Page 2
Foundation Certificate: Module 9
This guidance text is part of the study material for the Foundation Certificate in International
Insolvency Law and its use is limited to this certificate programme. Unauthorised use or
dissemination of this document is prohibited.
INSOL International
6-7 Queen Street, London, EC4N 1SP, UK
Tel: +44 (0)20 7248 3333
Fax: +44 (0)20 7248 3384
www.insol.org
Module Author
Dr Lézelle Jacobs
Associate Professor Faculty of Law
University of Technology Sydney
Australia
Copyright © No part of this document may be reproduced or transmitted in any form or
by any means without the prior permission of INSOL International. The publishers and authors accept no
responsibility for any loss occasioned to any person acting or refraining from acting as a result of any
view expressed herein.
Copyright © INSOL INTERNATIONAL 2023. All Rights Reserved. Registered in England and Wales, No.
0307353. INSOL, INSOL INTERNATIONAL, INSOL Globe
are trademarks of INSOL INTERNATIONAL.
Published: September 2023
Page i
Foundation Certificate: Module 9
1. INTRODUCTION TO ETHICS AND PROFESSIONAL PRACTICE
Welcome to Module 9, dealing with Ethics and Professional Practice. This Module is a
standalone elective module choice for the Foundation Certificate. The purpose of this guidance
text is to provide:
• an overview of the importance of the role played by insolvency professionals (IPs);
• an evaluation of the nature of the responsibilities of the IP and the ethical conduct expected
from IPs; and
• a detailed discussion and commentary on the best practice guidance as contained in INSOL
International’s publication, Ethical Principles for Insolvency Professionals.
This guidance text is all that is required to be consulted for the completion of the assessment
for this module. You are not required to look beyond the guidance text for the answers to the
assessment questions, although bonus marks will be awarded if you do refer to materials
beyond this guidance text when submitting your assessment. For the purpose of self-
assessment, you may be required to conduct research beyond the scope of this guidance text.
Please note that the formal assessment for this module must be submitted by 11 pm (23:00)
BST (GMT +1) on 31 July 2024. Please consult the web pages for the Foundation Certificate in
International Insolvency Law for both the assessment and the instructions for submitting the
assessment. Please note that no extensions for the submission of assessments beyond 31 July
2024 will be considered.
For general guidance on what is expected of you on the course generally, and more specifically
in respect of each module, please consult the course handbook which you will find on the web
pages for the Foundation Certificate in International Insolvency Law on the INSOL International
website.
2. AIMS AND OUTCOMES OF THIS MODULE
After having completed this module you should have a good understanding of the following
aspects of ethics and professional practice:
• the role of the IP in the insolvency system;
• the nature of the duties owed by IPs to their beneficiaries;
• the identity of the beneficiaries of the IP’s duties;
• the ethical standards to be expected of IPs;
• the threats to ethical behaviour by IPs;
Page 1
Foundation Certificate: Module 9
• aspects relating to proper practice management.
After having completed this module you should be able to:
• explain the duties owed by IPs and the nature of such duties;
• understand the nexus between the ethical norms expected from IPs and their fiduciary
duties;
• identify threats to ethical conduct by IPs;
• recommend safeguards for ethical conduct;
• understand the policies and procedures in relation to practice management as well as to
formulate and utilise them.
Throughout the guidance text you will find a number of self-assessment questions. These are
designed to assist you in ensuring that you understand the work being covered as you progress
through the text. In order to assist you further, the suggested answers to the self-assessment
questions are provided to you in Appendix A.
3. AN INTRODUCTION TO ETHICS AND PROFESSIONAL PRACTICE
3.1 The importance of ethical behaviour by insolvency professionals
The role of the Insolvency Practitioner (IP) is one of great importance. IPs play a “significant role
in lubricating the wheels of commerce”.1 The success and outcome of an insolvency procedure
will to a large extent depend on the IP’s attributes, qualifications and experience and, of course,
his ethics and morals. The trust and confidence that the stakeholders in an insolvency
proceeding (and the public at large) place in the IP is equally important. A lack of trust and
confidence in the profession erodes its efficacy in bringing about successful rescues and / or
ensuring that returns to creditors for failed companies can be maximised.
The role of the IP is brought into greater focus in the event of corporate insolvency, where more
stakeholders stand to be affected by the demise or threatened demise of the debtor. The
Corporate Insolvency Practitioner (CIP) operates in difficult and daunting circumstances,
involving distressed parties, competing demands, strict deadlines and complex legal, financial
and factual issues. Their tasks are therefore not only overwhelming at times, but also involve a
great deal of responsibility.
The consequences of financial distress on debtors and all the stakeholders involved make for a
chaotic, difficult and volatile situation, often leaving many parties vulnerable and at the “mercy”
of the appointed IP. It is therefore not surprising that the parties involved tend to look to the IP
to enforce the rules and bring about some much needed clarity and order. IPs are relied upon
1
Re Econ Corp Ltd (No 2) [2004] SGHC 49, 266 [Singapore].
Page 2
Foundation Certificate: Module 9
to do these tasks with the utmost professionalism, being mindful of the fact that he is engaged
in activities that will have a real impact on people’s lives and livelihoods. His conduct should
therefore reflect the seriousness of the circumstance and reflect the highest standards of ethical
behaviour.
Evidently the public and stakeholders in insolvency will scrutinise the IP and, based on his
conduct, form an opinion not only of him and the insolvency profession but also the entire
insolvency system. How would people be able to trust the system if they cannot trust the people
who administer it?
In this text the abbreviation “IP” will be used in relation to Insolvency Practitioners in general and
“CIP” to elaborate on principles of specific importance for Corporate Insolvency Practitioners.
3.2 The nature of an insolvency appointment
IPs are regarded as experts in the administration of insolvent estates and restructuring
strategies. They are given a large number of extensive powers to utilise their expertise and
experience in relation to the objectives of their appointment. However, if an IP has extensive
powers and responsibilities, yet lacks integrity, ethics and basic morality, it will not be of much
benefit to the debtor, its stakeholders or society at large. To this end, many jurisdictions have
imposed fiduciary norms to govern the conduct of IPs.
A fiduciary is largely accepted to be a person who:
(a) undertakes to act on behalf of another, and
(b) has discretion and power over the interests of the other.2
A further element of vulnerability is sometimes added as an indicator for the existence of a
fiduciary relationship.3 It is, therefore, not surprising that most IPs are regarded as fiduciaries.4
Although most insolvency appointments are reflective of the elements that prove the existence
of a fiduciary relationship, not all IPs are fiduciaries. An example of this type of appointment is
2
R Nimmer and R Feinberg, “Chapter 11 Business Governance: Fiduciary Duties, Business Judgment, Trustees and
Exclusivity” (1989) 6 Bankr Dev J 1, 34 – “The idea of treating one person as a fiduciary of another thus rests on
the fact that the discretionary judgment of the one controls the destiny of the other.”; R Valsan, “Fiduciary Duties,
Conflict of Interest and Proper Exercise of Judgment” [2016] 62 McGill LJ 1, 7. See also J Velasco, “Delimiting
fiduciary status” in D Smith and A Gold (eds), Research Handbook on Fiduciary Law (Edward Elgar 2018) at 78 – “It
is fair to say that power, trust, and vulnerability are the key terms used to describe fiduciary relationships
generally.” J Glover and J Duns, “Insolvency Administrations at General Law: Fiduciary Obligations of Company
Receivers, Voluntary Administrators and Liquidators” (2001) 9 Insolv LJ 137 – “Are voluntary administrators
fiduciaries? In the scheme of Pt 5.3A, administrators are acting for the benefit of others and the powers and
discretions that they possess are held in representative capacities. These are standard indicia of fiduciary status.”
3
R Valsan, “Fiduciary Duties, Conflict of Interest and Proper Exercise of Judgment” (2016) 62 McGill LJ 1, 7.
4
J Glover and J Duns, “Insolvency Administrations at General Law: Fiduciary Obligations of Company Receivers,
Voluntary Administrators and Liquidators” (2001) 9 Insolv LJ 137; D Milman, Governance of Distressed Firms
(Edward Elgar 2013) – “…can office-holders be classed as fiduciaries? The answer to this in all cases (whether or
not ‘officer of the court’ status applies) would appear to be in the affirmative.”
Page 3
Foundation Certificate: Module 9
the supervisor in a Company Voluntary Arrangement in England and Wales. IPs in Singapore are
generally regarded as fiduciaries.5 However, Private receivers, for example, have less of a
fiduciary character to their office. This is due to the fact that certain appointments are more a
matter of contract and private negotiations, and such private appointees are better seen as
service providers rather than fiduciaries. It was also noted earlier that certain IPs do not displace
the management of a corporate debtor, and as such will not be subject to the same fiduciary
obligations; managers under the new Singaporean “supercharged” schemes, which is more akin
to a debtor-in-possession proceeding, would be a good example here. A scheme manager’s
duties in terms of schemes of arrangement (not supercharged) have been said to take on a
fiduciary nature upon appointment as scheme manager.
The word “fiduciary” is, however, not definitive of a single class of relationships to which a fixed
set of rules and principles apply; it is necessary to determine the rules that govern each class of
fiduciary relationship.6 Many types of relationships are classed as fiduciary in nature and are
frequently described as relationships of trust.7 Lawyers, accountants, agents, trustees, doctors,
and directors of companies are but examples of a number of recognised fiduciaries. Evidently,
the fiduciary norms applicable to doctors cannot be applied to IPs as their roles and the
objectives of their office differ in a number of respects. It is imperative that the fiduciary norms
as applicable to IPs are developed and sufficiently nuanced so as to provide better clarity for the
insolvency profession and the community in which they operate, including the public at large.
Much ambiguity as to their role is created by jurisdictions that have differing approaches in
regard to the duties and obligations that IPs owe. Moreover, jurisdictions have divergent ideas
as to the exact nature of the IP’s role in different types of insolvency proceedings. This inevitably
leads to some confusion as to the role of the profession. IPs, of course, have their own thoughts
regarding their role and given the fact that they are appointed from the ranks of several different
professions, such as lawyers, accountants, auditors and business managers, the further
inevitability of even more confusion is a certainty. This is due to the fact that some of these
professions are regarded as fiduciaries in their own right and this will influence their behaviour
in accordance with different sets of fiduciary norms, which may be related but not similar. In
other words, lawyers and accountants might not have similar approaches to similar situations,
purely based on the fact that their frame of reference is different. As an example it could be
noted that most lawyers as fiduciaries have a special relationship with the law and the
administration of justice which might influence the way in which they deal with a specific situation
where elements of dishonesty and fraud have been detected. A much clearer and more
definitive approach as to the nature and extent of an IP’s sui generis fiduciary role is needed.
5
Kao Chai-Chau Linda v Fong Wai Lyn Carolyn [2015] SGHC 260, [2016] 1 SLR 21, 31 [21] [Singapore]; Re Econ
Corp Ltd (No 2) [2004] SGHC 49, 264 [45] [Singapore]. See also The Royal Bank of Scotland NV (formerly known
as ABN Amro Bank NV) and others v TT International Ltd and another appeal [2012] 2 SLR 213, where the court
thought it fitting to refer to fiduciary duties of liquidators when examining the duties of scheme managers [at 76].
6
M Havenga, Fiduciary Duties of Company Directors with specific regard to Corporate Opportunities (Transactions
of the Centre for Business Law, University of the Free State 1998) 10.
7
R Flannigan, “The Fiduciary Obligation” (1989) 9 Oxf J Leg Studies 285,286 – “It is a ‘deferential’ kind of trust in
the sense that the trusting person will defer to the judgment of the trusted person. The deference may be total,
or it may be only partial or situational. It is accompanied, in some cases, by elements of necessity, dependence or
submission.”
Page 4
Foundation Certificate: Module 9
This statement is even more accurate in the case of Corporate Insolvency Practitioners (CIPs),
due to the number of interested parties.
Depending on the type of appointment, whether it is a turnaround / rescue or liquidation, the
CIP enters the scene and usually takes control of the affairs and business of the debtor
company.8 The extent of an IP’s powers and discretion are often far-reaching and without any
personal liability. In many jurisdictions the CIP becomes an “officer” of the company and is also
required to adhere to the duties and obligations that are normally attributed to company
officers.9 In addition, in many jurisdictions the CIP will be regarded as an officer of the court.10
Understanding these duties are vital, especially for IPs who are not lawyers. Being an officer of
the court requires a person to act with integrity and to not mislead the court in acting on behalf
of a client. An officer of the court recognises the importance of honesty in the justice system and
as such would act in a manner which would further the administration of justice to the best of
their ability. These combine to create an intricate net of unique fiduciary responsibilities.
3.2.1 The duties
In accepting an appointment as an IP, the IP gives a voluntary undertaking to abide by the rules
and responsibilities that defines that type of fiduciary relationship and thereby encourages the
trust of the stakeholders involved.11 What these rules and responsibilities are should therefore
be clearly identifiable to ensure the IP’s compliance and thereby the trust of the parties.
Although the exact fiduciary duties of IPs in various jurisdictions might differ, the following main
duties can broadly be agreed upon as being applicable:
• the duty to act in good faith – this duty implies honesty and fair dealing;
• the duty to act in the best interest of the beneficiary of the fiduciary duties;
• the duty to exercise the powers of the office in an independent and impartial manner – this
duty includes the duty to avoid a conflict of interest; and
• a duty which is usually not regarded as being fiduciary in nature, the duty to act with care,
skill and diligence.
The duty to act with care, although not fiduciary in nature, is of extreme importance in insolvency
situations given the already dire circumstances of the debtor. Furthermore, it is inextricably
linked to fiduciary duties for it cannot be said that a fiduciary who acts in a negligent manner has
8
Bearing the distinction between debtor-in-possession and practitioner-in-possession in mind, this statement
refers to instances where a form of management displacement does take place.
9
The UK and Australia are good examples here.
10
Examples: South Africa, Scotland, England and Wales (limited instances), Canada, Australia, Singapore and
Germany.
11
M Harding, “Fiduciary relationships, fiduciary law and trust” in D Smith and A Gold (eds), Research Handbook on
Fiduciary Law (Edward Elgar 2018) 64 – “…fiduciary law’s greatest contribution to facilitating a principal’s trust-
based reliance is perhaps seen in its recognition of voluntary undertakings to abide by the norms that, distinctively,
characterise fiduciary relationships.”
Page 5
Foundation Certificate: Module 9
complied with his duty to act in the best interest of the beneficiaries of his duties. The duty to
act with care becomes even more important given the qualifications and skills of IPs, effectively
rendering them experts and thereby holding them to a higher degree of care.12
3.2.2 The beneficiaries
When it is accepted that an IP is a fiduciary, the next question would be who the beneficiaries of
the fiduciary duties are?
The task of determining the beneficiaries of fiduciary duties in insolvency proceedings is not
straightforward or easy. It has already been mentioned that the debtor’s demise will have a
profound impact on a large number of stakeholders. Various factors should be considered,
including:
(a) the extent of financial difficulty of the corporation;
(b) the procedure entered into;13
(c) the rights afforded to stakeholders; and
(d) the theories underpinning corporate (in the case of corporate insolvency) and insolvency
law.
Most jurisdictions follow a creditor-oriented approach to insolvency and as such it has become
widely accepted that the main beneficiaries of an IP’s duties are the creditors. However, it is not
the only approach to be taken.
Several academics have developed insolvency theories in an attempt to answer the question as
to whose benefit the insolvency law should be formulated. For purposes of this module, the
main theories of insolvency and corporate law will be identified and explained in a condensed
form.
3.2.2.1 Contractarian theories
The “contractarian theory” is generally based on wealth maximisation and the idea that the law
should maximise the collective return to creditors.14 This theory is also in line with the
“proceduralist” approach to insolvency which contends that insolvency law should address
issues that only arise out of insolvency and believe that non-insolvency claims and entitlements
should not be protected by the insolvency law unless this would result in a greater return for
12
L Jacobs and J Neethling, “Die sorgsame ondernemingsreddingspraktisyn: ‘n ondersoek na die gepaste maatstaf”
(2016) 13 LitNet Akademies 3, 773 (English title: “The careful business rescue practitioner: a search for the proper
yardstick”. Available at https://www.litnet.co.za/careful-business-rescue-practitioner-search-proper-yardstick/.
13
D Milman, Governance of Distressed Firms (Edward Elgar 2013) 92.
14
P Walton, “When is Pre-packaged Administration appropriate? – A Theoretical Consideration” (2011) 20
Nottingham LJ 1, 3-4.
Page 6
Foundation Certificate: Module 9
creditors.15 A recognised branch of the contractarian theory is the “creditors’ bargain theory”
(CBT), developed by Jackson in the early 1980s.16 CBT is based on the premise that creditors
enter into a bargain with the debtor company during negotiations for credit and thereby
establish their position and possible remedies upon default by the company, such as
insolvency.17 Upon the debtor company’s insolvency, the creditors with an interest will try to
recover their debt and will enter into a frenzied race with other creditors to enforce their private
contractual agreements with the company. This could cause depreciation in value of the
business assets, creating uncertainty of returns for all creditors. The CBT proposes to solve this
problem by replacing individual enforcement rights with a collective right to share in the
proceeds of the insolvency proceeding, giving rise to the “collectivist approach”.18 “…the
Creditors’ Bargain was essentially a bargain that in the event of bankruptcy, the creditors would
get everything.”19 The CBT therefore does not support any redistribution of wealth or
consequences in insolvency.20
Another contractarian theory can be found in the “team production theory” (TPT) of corporate
law.21 This theory is based on social contract and is much more inclusive in nature than the wealth
maximisation ideals of the CBT. This theory builds on the ideology that shareholders are not the
only party that contribute to the production process of a company. Other parties, such as trade
suppliers and the workforce, all contribute towards the end product.22 The TPT, therefore,
promotes the inclusivity of all stakeholders during insolvency proceedings and supports the
idea of redistribution of some of the interest of one stakeholder (team member) to another.23
The problem with the TPT might be that it is too wide and includes too many stakeholders (team
15
D Baird, “Loss Distribution, Forum Shopping, and Bankruptcy: A Reply to Warren” (1987) 54 U Chi L Rev 54 815;
H Nsubuga, “Corporate Insolvency and Employment protection: A Theoretical Perspective” (2016) 4(1) NIBLeJ
para 2.
16
P Walton, “When is Pre-packaged Administration appropriate? – A Theoretical Consideration” (2011) 20
Nottingham LJ 1, 4; H Nsubuga, “Corporate Insolvency and Employment protection: A Theoretical Perspective”
4(1) NIBLeJ 4 (2016), para 58.
17
H Nsubuga, “Corporate Insolvency and Employment protection: A Theoretical Perspective” (2016) 4(1) NIBLeJ 4
para 58. Walton is of the opinion that one of the shortcomings of the CBT is the fact that it only considers
“hypothetical contract creditors”. P Walton, “When is Pre-packaged Administration appropriate? – A Theoretical
Consideration” (2011) 20 Nottingham LJ 1, 5.
18
E Warren, “Bankruptcy Policy” (1987) 54 U Chi L Rev 775, 797-799. The Collectivists believe the single justification
for bankruptcy to be the enhancement of the collective return to the creditors. See also H Nsubuga, “Corporate
Insolvency and Employment protection: A Theoretical Perspective” (2016) 4(1) NIBLeJ 4 para 61; P Walton, “When
is Pre-packaged Administration appropriate? – A Theoretical Consideration” (2011) 20 Nottingham LJ 1, 5.
19
L LoPucki, “A Team Production Theory of Bankruptcy Reorganization” (2004) 57 Vand L Rev 741, 748.
20
Ibid.
21
L LoPucki, “A Team Production Theory of Bankruptcy Reorganization” (2004) 57 Vand L Rev 741, 744; H Nsubuga,
“Corporate Insolvency and Employment protection: A Theoretical Perspective” (2016) 4(1) NIBLeJ 4 para 72.
22
L LoPucki, “A Team Production Theory of Bankruptcy Reorganization” (2004) 57 Vand L Rev 741, 749 – “The team
members include all who make firm-specific investments but are unable to protect those investments by direct
contracting, personal trust or reputation. Team members may include stockholders, creditors, executives, other
employees, suppliers, customers, local governments, regulatory agencies, and others.” See also H Nsubuga,
“Corporate Insolvency and Employment protection: A Theoretical Perspective” (2016) 4(1) NIBLeJ 4 para 73.
23
H Nsubuga, “Corporate Insolvency and Employment protection: A Theoretical Perspective” (2016) 4(1) NIBLeJ 4
para 77 – “The TPT being an inclusive theory, advocates honouring all team members’ interests on the insolvency
of the company, whether in terms of financial gain or losses.”
Page 7
Foundation Certificate: Module 9
members) who cannot realistically nor economically always benefit from the insolvency
proceeding.24 This theory closely resembles some of the “traditionalist” theories on insolvency.
3.2.2.2 Traditionalist theories
Traditionalist theories on insolvency law are against the idea that the law should exist only to
serve creditors’ interests and are consequently also inclusive in nature.25 Communitarianism
looks to balance a wide range of different stakeholders in the insolvency of the debtor and even
to consider the welfare of the community at large.26 It “considers limiting the rights of high
ranking creditors to give way to some extent to others including the community at large.”27 It
subscribes to the notion of redistribution, that is, to redistribute the consequences of the
debtor’s default.28 Communitarian theorists seek to focus on the fact that those involved in and
dealing with companies are humans and corporate law should not be de-personalised.29 The
Cork Report also seems to validate at least some aspects of the Communitarian Theory. 30
Criticism levelled against this theory relates to the difficulty of defining the community and
determining how far it may stretch and is cumbersome.31 Also, articulating the community’s
needs in legislative form may prove to be problematic.32 The communitarian theory has a lot in
common with Warren’s “multi value approach”, or “eclectic approach”.33 In a corporate
insolvency context this approach requires recognition of those who are not directly “creditors”.34
Warren refers to the notion that it was intended that insolvency law address concerns that are
broader than just the debtor’s immediate problems and that of its creditors.35 It should involve
considering other internal or external stakeholders such as employees, suppliers or tax
authorities and in some instances to “protect interests that have no other protection”.36 It is,
however, criticised as “too widely expressed to be of much specific assistance in developing
24
LoPucki contends that TPT entitlements are entitlements to “rents and surpluses” and it goes without saying much
that there will not be a lot of surplus in the case of insolvency.
25
J Wood, “Corporate Rescue: A Critical Analysis of its Fundamentals and Existence” (PhD thesis, University of Leeds
2013) – “Contrary to proceduralists, traditionalists believe that insolvency law is not a tool solely reserved for the
creditors in which they can pursue their own interests.” at 88; H Nsubuga, “Corporate Insolvency and Employment
protection: A Theoretical Perspective” (2016) 4(1) NIBLeJ 4 para 3.
26
P Walton, “When is Pre-packaged Administration appropriate? – A Theoretical Consideration” (2011) 20
Nottingham LJ 1, 7.
27
Ibid.
28
E Warren, “Bankruptcy Policy” (1987) 54 U Chi L Rev 775, 777.
29
A Keay, “Tackling the Issue of the Corporate Objective: An Analysis of the United Kingdom’s ‘Enlightened
Shareholder Value Approach’” (2007) 29 Sydney L Rev 577, 586.
30
Cork Report on Insolvency Law and Practice, Cmnd 8558 [1982]: p 56 para 204. “The chain reaction consequent
upon any given failure can potentially be so disastrous to creditors, employees and the community that it must
not be overlooked.”
31
P Walton, “When is Pre-packaged Administration appropriate? – A Theoretical Consideration” (2011) 20
Nottingham LJ 1, 7.
32
Idem, at 9.
33
Idem, at 10.
34
E Warren, “Bankruptcy Policy” 54 (1987) U Chi L Rev 775; P Walton, “When is Pre-packaged Administration
appropriate? – A Theoretical Consideration” (2011) 20 Nottingham LJ 1, 10.
35
E Warren, “Bankruptcy Policy” (1987) 54 U Chi L Rev 775, 788.
36
E Warren, “Bankruptcy Policy” (1987) 54 U Chi L Rev 775, 788; P Walton, “When is Pre-packaged Administration
appropriate? – A Theoretical Consideration” (2011) 20 Nottingham LJ 1, 10.
Page 8
Foundation Certificate: Module 9
policy.”37 It does not provide enough guidance as to the weight that has to be afforded to each
of the interests and priorities that come into play in an insolvency context. As Walton states, “[i]t
is not clear which principles are to be seen as core and which are of peripheral relevance.”38
Baird criticises Warren’s approach by asking the reasonable question of why stakeholders
should be given special rights in insolvency if they don’t have the same rights outside of
insolvency?39
3.2.2.3 The “enlightened creditor value” approach
As part of a recent research project, I developed my own theory of insolvency law: the
“enlightened creditor value” (ECV) approach.
Like its solvent brother, the ESV approach,40 the ECV sets out to strike a balance between the
competing interests of differing stakeholders in order to benefit creditors in the long run. It can
be seen as a compromise between the creditor theories and stakeholder theories.
This theory encourages the CIP to achieve the best outcome for creditors by taking into account
all the relevant considerations for that purpose; this involves the taking of a proper balanced
view of the short and long term – the interests of the shareholders and employees, customers,
suppliers, financiers and others – as well as to consider the impact of the company’s possible
demise on the community. The basic position is that CIPs are required to treat creditors’ interests
as paramount, that is, “creditors first”, not “creditors only”. The interests of employees or other
stakeholders should be considered in performing these duties – but only where this would be
in the creditors’ interest. A practical example of this theory could be something along the
following lines: If a CIP faces the decision of whether or not to lay-off the employees of the
company during rescue proceedings, the decision to delay termination of their employment
contracts, at least to some extent, would involve a consideration of the employees’ interests but
ultimately should hold some benefit for the creditors in that the employees’ continuous
employment will contribute to the generation of revenue or the retention of goodwill that will
lead to a better outcome for creditors in the long run.
This approach can be further qualified by stating that the extent to which a CIP would have to
exercise his duties for the benefit of other stakeholders, should depend on the nature of the
proceedings and the scope of the financial difficulty the debtor company is facing:
(a) During rescue proceedings the CIP, having regard to the financial situation of the debtor,
ought to weigh up the competing interests of the stakeholders involved. If the financial
difficulty of the debtor has not reached the stage of “doubtful solvency”, as Hawke states,41
37
P Walton, “When is Pre-packaged Administration appropriate? – A Theoretical Consideration” (2011) 20
Nottingham LJ 1, 11.
38
Ibid.
39
D Baird, “Loss Distribution, Forum Shopping, and Bankruptcy: A Reply to Warren” (1987) 54 U Chi L Rev 54 815,
817-818 – “Whenever we must have a legal rule to distribute losses in bankruptcy, we must also have a legal rule
that distributes the same loss outside of bankruptcy”, at 822.
40
The enlightened shareholder value approach.
41
N Hawke, “Creditors’ Interest in Solvent and Insolvent Companies” [1989] JBL 54, 59.
Page 9
Foundation Certificate: Module 9
then the CIP should take greater care to act in the interests of the company and its
shareholders.42 Where the company is, however, beyond that point and where it conversely
enters the “twilight zone”, the CIP should keep the interests of the creditors at the fore;
(b) Where the CIP is appointed as the liquidator of the company he or she owes fiduciary duties
to the creditors of the company but also to the company itself.43 Liquidators, therefore,
exercise their duties for the benefit of the creditors in the first instance and then for the
benefit of the shareholders.
3.3 INSOL International’s Ethical Principles for Insolvency Professionals
In 2016 INSOL International44 took the initiative of drafting “Ethical Principles for Insolvency
Professionals” to address the ethical foundation that underpins the insolvency profession. The
drafting of the principles was undertaken by Working Group 10 of INSOL’s Task Force 2021.
This Working Group considered an extensive range of ethical issues in drafting the principles
that are meant to be used as best practice guidance to members as well as to jurisdictions and
recognised professional bodies that do not have ethical guidelines that apply to IPs. As trust and
confidence are essential to the efficacy of an insolvency regime, the goal in establishing the
Principles is to enhance and protect the integrity of the insolvency profession and to create a
framework that is fair, effective, practical and readily understood.
The members of the Working Group were representative of the diverse community that work in
insolvency; from practitioners with a legal or accounting background, members of professional
bodies to academics focusing on ethics in insolvency. Several jurisdictions were represented by
those involved, contributing to the final product providing a global overview of ethical
considerations for the insolvency profession.
The Principles are therefore generic in nature in order to set out the most basic ethical standards
expected of IPs. It could be viewed as a quasi-“model code” that can be adapted as needed and
incorporated into a jurisdiction’s provisions relating to the regulation of IPs.
The Principles are therefore not meant to replace the ethical obligations of IPs in terms of a
specific jurisdiction’s legislation, regulations or other forms of professional standards and are
not mandatory. As stated, they are meant to provide a guide to best practice while allowing for
the differing nature of legislation and insolvency practice in different jurisdictions.
The Principles provide guidance based on international standards of conduct and consequently
some of the principles may impose a higher standard than existing jurisdictional legal
requirements. Where the law in a jurisdiction is silent, or ambiguous, the Principles aim to
provide clarity and guidance as to what is regarded as best practice.
42
Ibid – “…as long as the company remains on the right side of ‘doubtful solvency,’ any consideration for creditors’
interests need only be minimal.”
43
A Keay and P Walton, Insolvency Law Corporate and Personal (4th ed, LexisNexis, 2017) 299.
44
International Association of Restructuring, Insolvency and Bankruptcy Professionals.
Page 10
Foundation Certificate: Module 9
In the event that the Principles in some way conflict with existing local rules or laws, they are not
intended to supersede such rules or laws. The majority of the content of this Guidance Text is
based on the INSOL Principles.
3.4 Other sources of guidance on ethical behaviour
There are also other documents that provide guidance on the qualities and the behaviour that
is to be expected of IPs that will be important for this module.
3.4.1 UNCITRAL Legislative Guide on Insolvency Law
The purpose of the United Nations Commission on International Trade Law (UNCITRAL)
Legislative Guide on Insolvency Law (UNCITRAL Guide or the Guide) is to aid in establishing an
efficient and effective legal framework for addressing the financial difficulty of debtors.45 It is
intended to act as a point of reference for national authorities and legislative bodies when
preparing new insolvency laws and regulations, or for the purpose of reviewing the adequacy
of existing insolvency laws and regulations.46 To this end, the UNCITRAL Guide provides
guidance on the role of the insolvency representative or IP, his tasks and rights and duties. The
Guide states that due to the important role of the CIP and the extensive powers bestowed on
him, it is essential that he is appropriately qualified and possesses the knowledge, experience
and personal qualities that will ensure not only the effective and efficient conduct of the
proceedings, but also that there is confidence in the insolvency regime.47 The most important
qualities mentioned by the Guide for purposes of this module are: integrity, impartiality,
independence and good management skills.48
Where relevant, mention will also be made of this document in the discussion of the INSOL
Principles below.
3.4.2 The World Bank Principles
The World Bank’s Principles and Guidelines for Effective Insolvency and Creditor Rights Systems
(World Bank Principles),49 much like the UNCITRAL Legislative Guide, are to be used to guide
system reform and benchmarking. The principles and guidelines are a distillation of
international best practice on the design aspects of insolvency systems. The principles touch on
a wide array of important aspects regarding the insolvency process.
Relevant to the discussion on ethics and practitioner behaviour are:
(1) Principle 33, which refers to the integrity of participants in the insolvency system. It provides
that rules should be provided to prevent abuse of the insolvency system and that these rules
45
UNCITRAL Legislative Guide on Insolvency Law, 2004, available online at http://www.uncitral.org/pdf/
english/texts/insolven/05-80722_Ebook.pdf, p 1, para 1.
46
Idem, p 1, para 1.
47
Idem, p 174, para 35. Emphasis added.
48
Idem, p 174-175, para 41.
49
World Bank Group, Principles and Guidelines for Effective Insolvency and Creditor Rights Systems, April 2001.
Page 11
Foundation Certificate: Module 9
in turn instil public confidence in the insolvency system.50 Even though the principles do not
mention IPs specifically, they are included by implication as one of the main participants in
the proceedings. This principle highlights (by implication) the integrity of the IP and touches
on the prevention of abuse of the insolvency system; and
(2) Principle 35, which refers to the competence and integrity of insolvency administrators and
provides that IPs should be competent to exercise the powers given to them and should act
with integrity, impartiality and independence.51 This principle states that those who
administer insolvencies are given powers over debtors and their assets and have a duty to
protect them and their value.52
3.4.3 European Bank for Reconstruction and Development (EBRD) Office Holder Principles
The EBRD Insolvency Office Holder Principles53 (EBRD Principles) build on the World Bank
Principles and Guidelines and the UNCITRAL Legislative Guide, by providing greater detail and
guidance on the application of the standards and practices advanced by those institutions in
relation to insolvency professionals.
The EBRD Principles provide guidance on several aspects of the role of the IP in an insolvency
regime and promote ethical norms such as honesty, integrity, independence and impartiality,
as well as the duty to stay abreast of important legal and technical developments in the field and
to act with care.
Principle 12 recommends that local laws should encourage and facilitate the development of a
code of ethics.54 Moreover, it suggests that the law should compel the application of the code
by ensuring that it is enforced and binding on IPs.
Where applicable, reference will also be made to the EBRD Principles in the text below.
4. CODES OF CONDUCT
IPs can often stumble into a breach of their fiduciary duties, not necessarily because they are
unethical but because they sometimes fail to understand the extent of what is expected of them
in the role of IP. One way in which an attempt can be made to remedy this, is for jurisdictions to
draft a code of professional conduct and ethics specifically aimed at IPs. This will not only
provide IPs with the opportunity to examine the nature and goals of their work, it also offers
information to others (the stakeholders and general public) about what can be expected from
members of the insolvency profession. To this end Codes are to describe principles intended
to: i) guide present and future behaviour; ii) influence decisions an IP makes so his resulting
50
Idem, p 60, para 220-221.
51
Idem, p 61, para 226.
52
Idem, p 61, para 227.
53
EBRD Principles in Respect of the Qualifications, Appointment, Conduct, Supervision, and Regulation of Office
Holders in Insolvency Cases, June 2007, available online at file://prs- tore2.unv.wlv.ac.uk/
home0$/u22982/home/Profile/Downloads/ioh_principles%20(1).pdf
54
Idem, p 11.
Page 12
Foundation Certificate: Module 9
behaviour is acceptable; and iii) provide information as to how ethical dilemmas can be dealt
with or addressed.55
Not only will this enable IPs to better navigate the ethical conundrums of insolvency
appointments, but will also provide a rare opportunity to educate stakeholders and members of
the public who are often too keen to believe the worst of the insolvency profession.
A code of conduct should incorporate the guidance and best practice principles provided by
the standard-setting bodies for insolvency (UNCITRAL and the World Bank Group) as well as
other international organisations.
Not surprisingly, codes of conduct and ethics are often relied upon by the court, as a breach of
a jurisdiction’s code can be a strong indicator of an IP’s breach of duties.56
5. THE PRINCIPLES
5.1 Introduction
As stated above, a code of conduct can be seen as a sensible way of educating IPs and the
general public as to the ethical standards expected of officeholders in a specific jurisdiction.
There are various approaches to drafting a code of conduct.
Some codes of conduct are rules-based. A rules-based code usually includes a set of detailed
rules to govern professional conduct and to serve as a foundation for resolving grievances.57 It
is a type of code that sets out the do’s and don’ts of the profession and are usually binding and
enforced throughout the system.
Other codes follow a principles-based approach. A principles-based approach usually sets out
certain ideals to which practitioners should strive and makes use of lofty language about what
“should” be done in regard to certain themes. Instead of focusing on what is right or wrong, it
places an emphasis on self-realisation as to what the best approach in a situation might be.
As the title suggests, the INSOL Principles follow a principles-based approach. As noted earlier,
the INSOL Principles are not mandatory and are meant to set out international best-practice
ethical behaviour whilst not being bound to any specific jurisdiction. Moreover, it can be argued
that a principles-based approach to ethics further encourages ethical behaviour by compelling
IPs to consider whether their conduct meets the ideals set out in the principles, in effect also
compelling the IPs to think about what the ethical thing is to do.
55
S Jakubowski et al, “A Cross-Country Comparison of the Codes of Professional Conduct of Certified Chartered
Accountants” (2002) 35 JBusEthics at 111, 112.
56
Re 1 Blackfriars Limited (in liquidation) [2021] EWHC 684 (Ch) at para 252 [England and Wales]. In the judgment
the court referred to the case of Brewer v Iqbal [2019] EWCH 182 (Ch) at para 80 where CICCJ Briggs stated that
behaviour constituting a breach of the Fundamental principles of Integrity or Objectivity as described in the
Code of Ethics may well be strong or very strong evidence of a breach of duty of care or a fiduciary duty.
57
M Frankel, “Professional Codes: Why, How, and with What Impact?” (1989) 8 J Bus Ethics 109, 111.
Page 13
Foundation Certificate: Module 9
5.2 Integrity
Principle 1 – Integrity
Integrity
In addition to complying with applicable law, Members should endeavour to demonstrate the
highest levels of integrity by being straightforward, honest, and truthful; and by adhering to
high moral and ethical principles in all aspects of their professional practice.
Commentary
Integrity implies fair dealing, honesty and truthfulness.
5.2.1 Integrity – honesty, straightforwardness and truthfulness
The IP is deemed to act in good faith if he acts with honesty, integrity and confidentiality. On
account of his membership of a particular profession,58 the IP is in most instances already
required to demonstrate impeccable probity and honesty.
The beneficiaries in the insolvency proceedings are at “at the mercy” of the IP’s discretionary
powers;59 they have to trust and / or rely on the IP to protect their interests. This reliance and
trust in the practitioner demands honesty, truthfulness and transparency on the part of the IP. It
is crucial for the IP to be honest and truthful with the beneficiaries and to act with integrity
towards them at all times. Honesty implies that the IP should refrain from lying, while truthfulness
means that the IP should not conceal any facts from parties with an interest in the outcome of
the insolvency. Honesty further implies that the IP should be open and transparent in his
decision-making and should not conceal or misrepresent any information. The IP should be
honest and truthful when negotiating on behalf of the beneficiaries as well as when reporting
on his acts and dealings.
The IP must refrain from misleading a creditor, employee or shareholder of the company
through any act or omission. Honesty and frankness by the IP may also help neutralise any
negative emotions during the insolvency proceeding. An honest and transparent approach to
the procedure would instil confidence among beneficiaries and the public and facilitate better
co-operation. In restructuring proceedings, this duty will include honesty and truthfulness
regarding the prospects of success.
58
Lawyers, accountants, auditors.
59
F Cassim et al, Contemporary Company Law (2nd ed, Juta 2012) 512 – “Typically, in fiduciary relationships, one
party is vulnerable to, or is at the mercy of, another party's discretion.”
Page 14
Foundation Certificate: Module 9
5.2.2 High moral and ethical standards
The Principle requires the IP to adhere to high moral and ethical standards in all aspects of
professional practice. Morality and ethics are closely related but are not the same thing. Morals
usually refer to a person’s personal beliefs regarding what is right or wrong and is therefore
often influenced by upbringing, education, culture and even religious beliefs. Morals, therefore,
tend to be subjective. However, morals also tend to provide the foundations for ethics. Ethics
refer to the specific rules and actions that are regarded as correct behaviour and often relate to
a specific group of people who function in similar circumstances – such as the IP profession. So,
although morals form the basis of ethics, ethics does not concern a set of beliefs regarding what
is right or wrong, but rather what would be acceptable standards of conduct. This is why the
INSOL Principle requires both. The IP should have a personal set of beliefs to guide his actions
but should also adhere to the ethical values of the group he belongs to. Where there is a conflict
between his personal beliefs and that of the profession, the professional standards should trump
his personal opinions. This is because of the fact that a moral action can also be unethical. An
example might be where an IP, due his personal beliefs and a moral desire to be open and
honest with the stakeholders, divulges information which should be kept confidential in
accordance with ethical guidance.
5.2.3 Fair dealing
Fair dealing relates to treating people fairly or equitably. In an insolvency scenario, it will not be
possible for an IP to treat all the stakeholders equally as usually a system is set up in favour of
certain stakeholders (especially creditors). However, bearing this in mind it is possible to treat
like stakeholders alike and to ensure the equitable treatment of all involved.
Rajah, JA said the following in regards to IPs exercising their duties in a fair manner:
“The principle that can also be gleaned from this brief overview is that the duty
of the liquidator in assessing a proof of debt is to ensure that while genuine
debts are admitted and false claims are rejected, he must act fairly in discharging
his duties. He must, at all times, be independent and hold an even hand in
dealing with the often competing interests of creditors, contributories and his
appointers. A liquidator must never favour the interests of his appointers over
that of the other legitimate claimants to the company’s assets.” (emphasis in the
original)60
60
Fustar Chemicals Ltd (Hong Kong) v Liquidator of Fustar Chemicals Pte Ltd [2009] SGCA 35, [2009] 4 SLR (R) 458,
at [18] [Singapore].
Page 15
Foundation Certificate: Module 9
Self-Assessment Exercise 1
Question 1
What are the most common elements associated with the existence of a fiduciary relationship?
Question 2
Identify the key fiduciary duties linked to Insolvency Professionals
Question 3
True or False? All Insolvency Professionals owe fiduciary duties.
Question 4
Identify the sources of ethical guidance available to jurisdictions when considering frameworks
for addressing the behaviour of Insolvency professionals.
Question 5
True or False? Being truthful and being honest amounts to the same thing.
For commentary and feedback on self-assessment exercise 1, please see APPENDIX A
5.3 Objectivity, independence and impartiality
Principle 2 – Objectivity, Independence and Impartiality
Objectivity, Independence and Impartiality
Members should exhibit the highest levels of objectivity, independence and impartiality in the
exercise of their powers and duties.
Members should avoid circumstances likely to result in a conflict of interest.
Members appointed over an estate should not acquire or remove any assets or cash from the
estate except as prescribed or as properly authorised remuneration.
Page 16
Foundation Certificate: Module 9
Members should not be unjustly enriched, for example, by receiving secret kick-backs or
commissions.
Commentary
Independence should be considered both as a matter of fact and from the perspective of an
informed observer. It should be considered with reference to jurisdictional guidance, whether
legislative, professional or code-based, but the key tenet underlying the principle of
independence should be ensuring that a Member’s conduct is, and is seen to be, not unfairly
or improperly biased towards any party, including Members themselves or their associates. A
Member should not accept an appointment in connection with the estate if his (or a related
party’s) relationship with the directors of the company or any of the stakeholders would give
rise to a possible or perceived lack of independence.
Threats to objectivity, independence and impartiality may include any of the following, singly
or in combination:
• Self - interest;
• Self - review;
• Advocacy;
• Familiarity; and
• Intimidation.
Lack of independence cannot necessarily be cured by disclosure or by appointment of an
independent joint practitioner or officeholder, although both options may be considered and
may be appropriate in certain circumstances.
Where a Member purchases or removes assets or cash from the estate (excluding appropriately
approved remuneration and disbursements payments), it is likely that there will be a perception
that independence, objectivity and / or impartiality has been breached, even if it has not in fact
been breached. Such action may erode trust in the integrity of such Member and the process.
Where a Member appointed over the estate of a commercial retailer is purchasing goods or
services from a commercial retailer that sells to the public, it should generally be permissible
for such Member to purchase such items from the retailer in the ordinary course of business
(for example, buying food in a retailer on the same terms as every other purchaser). However,
Members should not take advantage of staff discounts or special payment terms, as doing so
may impair, or be perceived to impair, independence.
Bribery or payment or receipt of secret commissions in order to receive work or provide work
to others should be unacceptable.
Page 17
Foundation Certificate: Module 9
Acquisitions by close connections, for example family, connected / related parties, will
generally give rise to the same concerns as acquisitions by Members themselves. Therefore,
immediate relatives and close business connections should be subject to the same restrictions
as Members.
Jurisdictions may wish to permit a Member (or relative or connection) to purchase assets where
the stakeholders have given explicit permission in advance.
The IP will only be able to exercise his discretion and powers in the best interest of the
beneficiaries if he is independent and impartial. This is especially true given the balancing act
he has to perform in considering and dealing with the competing interests of the stakeholders.61
The call to independence and impartiality of the IP aims to ensure that the IP does not allow bias,
a conflicting interest, or the undue influence of others to override his professional and / or
business judgements in the execution of his duties and obligations. It is worth noting that many
jurisdictions have strict legislative provisions dealing with this aspect.62 IPs should not take
appointments where their independence and impartiality will be called into question by the
existence of a relationship with a stakeholder. In the event that such a relationship precludes an
IP form accepting an insolvency appointment, a joint appointment does not necessarily
constitute a proper safeguard.
Independence is two-fold. IPs must be independent in fact and also be seen or perceived to be
independent. Independence in fact requires that the IP be factually free from any influences that
could compromise his judgement. IPs must, therefore, avoid all personal and professional
relationships and direct or indirect interests that will adversely influence, impair or threaten their
integrity and ability to make decisions. Independence in perception, on the other hand, includes
the avoidance of circumstances that would lead a reasonably informed third party to conclude
that the IP’s integrity, independence and impartiality have been compromised.
Being seen or perceived to be independent and impartial is of extreme importance in the
context of insolvency proceedings. If the stakeholders involved in the proceedings perceive the
IP to be biased, or to lack independence (even though it might be untrue), it would negate the
trust and reliance that they have placed in him. The importance of being perceived to be
independent was recently tested in the case of Re Hodlnaut Pte Ltd63 here the court at para 10
61
C Anderson, “Miracle Workers or Ambulance Chasers? The Role of Administrators in the Part 5.3A Process” (2004)
12 Insolv LJ 238, 248.
62
Australia in particular has extensive provisions dealing with the independence and impartiality of CIPs. See eg s
448C of the Corporations Act 50 of 2001 and the Australian Restructuring, Insolvency and Turnaround Association
(ARITA) Code of Professional Practice. Australia’s firm approach to independence and impartiality stems from the
well-known Harmer Report (Australian Law Reform Commission General Insolvency Inquiry Report No 45 (1988)),
which emphasised that impartiality is one of the nine fundamental principles for an efficient insolvency regime –
“An insolvency administration should be impartial, efficient and expeditious”.
63
Re Hodlnaut Pte Ltd [2022] SGHC 209; 10 [Singapore]. The court also made some comments about the Malaysian
approach to a perceived lack of independence in the case of Jepak Holdings Sdn Bhd v TNB Repair and
Maintenance Sdn Bhd & Ors [2021] 11 MLJ 625.
Page 18
Foundation Certificate: Module 9
stated that an appointment is “fact-dependent” and Abdullah J noted that he was disinclined to
follow a rule which required the court to go “further than a factual determination” in relation to
the independence of the IPs in the case. Ultimately, the court upheld the notion of a perceived
lack of independence by stating that “…it was to my mind best to have an appointment that
would avoid as best as possible any concerns about independence: the process will be likely be
complicated enough as it is”. This development is worrying. From an outsider’s perspective
Singapore has a robust ethical framework in place for IPs, an approach that would only require
factual independence might do great harm to the esteem of insolvency industry in this
Jurisdiction.
Case law has also established the factors the court might take into account when considering a
perception of bias: whether the person held a subjective belief that the IP was biased; that that
belief was reasonable; and that as a consequence the person had lost confidence in the ability
of the IP to perform his tasks without fear or favour.64 An argument has also been put forward
that independence issues should be addressed as a matter of substance rather than form.65
Without trust and reliance, the stakeholders and beneficiaries will no longer believe that the IP
is bound to act in their best interest,66 which could lead to a discontinuance of their co-operation
with the IP and the insolvency process. This could be particularly cumbersome in rescue
proceedings where the co-operation of certain parties is essential to the success of
implementing a rescue plan or strategy. In other words, a perceived lack of independence could
undermine the success of an entire rescue proceeding.
In the pursuit of ensuring the independence of IPs, jurisdictions usually identify certain personal
and professional relationships or situations that might give rise to a lack of independence. These
might include any professional or personal association with the company or a company
director,67 a company shareholder, a company employee, company business partners, other
firms or entities controlled by the company, either secured or unsecured company creditors,
company debtors, or even the relatives of company officials. As the aforementioned list does
not purport to be a numerus clausus of relationships, each instance of alleged lack of
independence would have to be assessed against the prevailing circumstances. An attempt to
pin all the situations that could give rise to a lack of independence and impartiality down, would
64
Petroships Investment Pte Ltd v Wealthplus Pte Ltd [2018] 3 SLR 687, [109]; Liquidators of Ace Class Precision
Engineering Pte Ltd (in members’ voluntary liquidation) v Tan Boon Hwa and others and other matters [2022] 3 SLR
539; [2021] SGHC 134, [104]. [Singapore].
65
Martin Bruce Jones (joint and several administrators GD Pork Holdings Pty Ltd (administrators appointed) as trustee
for the GD Pork Unit Trust [2021] WASC 428. [Australia]. See also Robert Austin AM, ‘The duty of independence’
(20230 35(1) ARITA J, 24 “…and in the present case it was relevant that the payment of fees for the pre-
appointment work was a relatively small amount of money which could not sensibly be regarded by a reasonable
observer as a possible influence.”
66
Bovis Lend Lease Pty Ltd v Wily [2003] 45 ACSR 612: 139 [Australia]. See also In the matter of MSOLD1 Limited (in
administration) [2022] EWHC 3015(Ch) [England and Wales] where the perception of a lack of independence by
certain stakeholders were raised in this regard.
67
See, eg, Bovis Lend Lease Pty Ltd v Wily [2003] 45 ACSR 612 – in this case the CIP had previously acted as an
advisor to one of the company’s directors; African Banking Corporation of Botswana v Kariba Furniture
Manufacturers and others (228/2014) [2015] ZASCA 69; 2015 (5) SA 192 (SCA); [2015] 3 All SA 10 (SCA) – in this
case the CIP had previously acted as an attorney for the company.
Page 19
Foundation Certificate: Module 9
be unwise. It is far better to provide examples of threats and common issues in practice that
could prove cumbersome in adhering to this ethical norm.
CASE STUDY
The Royal Bank of Scotland NV (formerly known as ABN Amro Bank NV) & ors v TT
International Ltd and another appeal [2012] SGCA 9, [2012] 2 SLR 213
[SINGAPORE]
In this case the objectivity and impartiality of the Scheme Manager were in doubt due to his
acting as the nominee in the Individual Voluntary Arrangements (IVAs) of two of the
shareholders of the respondent TT International (the corporate debtor in question). Both
shareholders were also creditors of the company for unpaid dividends. It was a bone of
contention in voting to approve the scheme plan where it was argued that the Scheme
Manager lacked objectivity in adjudicating proof of debts and that this affected the fairness of
the process.
The court stated that the conduct of the Scheme Manager goes “too far” when he begins to
align his interests with those of the company. The court noted that the temptation to do this is
especially critical when his appointers are not the creditors but the company’s management.
In this case the success of the shareholders’ IVAs depended heavily on the success of the
scheme and created an incentive on the part of the IP to have the plan approved for other
reasons than merely an attempt to rescue the company.
“In our view, this additional relationship with Mr Sng and Ms Tong, key personnel of the
Respondent, was inappropriate because it put the proposed Scheme Manager in an
unacceptable position of unavoidable conflict of interest. Therefore, we ordered the
proposed Scheme Manager to elect either to continue as such only or as nominee for Mr Sng
and Ms Tong in their proposed IVAs only (see Annexure I at [11]). He eventually chose to act
for the Respondent alone.”68
This case clearly illustrates the manifestation of a conflict of interest that can arise from having
a professional relationship with a stakeholder in the proceedings and how this can influence
the behaviour of an IP.
In order to address threats to independence and impartiality, some jurisdictions provide for the
disclosure of the relationship and a declaration of independence. In this document an IP would
be required to truthfully disclose any and all relationships that he might have with any
stakeholders in the insolvency proceeding, as well as the nature of said relationship and the
68
The Royal Bank of Scotland NV (formerly known as ABN Amro Bank NV) & ors v TT International Ltd and another
appeal [2012] SGCA 9, [2012] 2 SLR 213, 241 at [78] [Singapore].
Page 20
Foundation Certificate: Module 9
level of interaction with the stakeholder. The IP would also be expected to state that despite the
existence of a relationship with a stakeholder he would still be able to perform his duties
independently and impartially. However, disclosure of such a relationships does not suddenly
render them harmless. If the relationship is not substantial and of a merely superficial nature,
disclosing it and declaring independence might remedy the situation. However, it will be a much
harder task convincing stakeholders of independence and impartiality when the IP has had a
longstanding professional or personal relationship with someone related to the proceedings or
one of the stakeholders. The mere disclosure of any relationship as a solution, is flawed. No
disclosure serves as a guarantee of impartial and objective conduct. Instead, the declaration by
the IP should be seen as a disclosure of those relationships that do not pose any risk to the
practitioner’s independence. It is also important that relevant indemnities be declared. In
circumstances where the remuneration of IPs is funded by stakeholders the possibility for lack
of independence perception issues is increased.69
In the recent case - Liquidators of Ace Class Precision Engineering Pte Ltd (in members’ voluntary
liquidation) v Tan Boon Hwa and others and other matters70 - it was stated that the independence
and impartiality of IPs are important regardless of whether the liquidation was a solvent or
insolvent liquidation. In this case certain creditors sought to have the liquidators of the group of
solvent companies removed based on allegations of actual and perceived bias. However, due
to the liquidators’ professional behaviour they were able to prove that the application was
brought in an attempt to frustrate the liquidation proceedings. The court made valuable
comments on the circumstances which might be used to demonstrate bias: bias could be
demonstrated by an IP’s failure to investigate the affairs of the company without a rational basis,
or in not exercising discretion in good faith.71
The elements of the insolvency proceedings dealt with below are particularly cumbersome and
often give rise to threats to the independence and impartiality of the IP and specifically the CIP.
5.3.1 Nature of pre-commencement / appointment involvement
In practice, prior consultations often occur between the CIP and the company or stakeholders.
These consultations may also create the impression of a lack of independence and impartiality
on the part of the CIP. Yet the prior consultations need not result in the disqualification of that
person as practitioner and may in fact constitute a crucial part of the insolvency process.
Therefore, not all forms of contact between the CIP and stakeholder parties prior to the
practitioner’s appointment would necessarily result in a lack of independence. Nevertheless,
there should be limits to what would be deemed acceptable engagement during such
consultations. Should the consultation involve material engagement by any of the stakeholder
parties, the CIP would no longer be independent and should therefore not be appointed as
practitioner. The advice provided by the practitioner in the prior consultation should be limited
69
Superpark Oy v Super Park Asia Group Pte Ltd and others [2021] 1 SLR 998; [2021] SGCA 8. [Singapore]. The fact
that the IPs in this case received financial support from a relevant stakeholder clearly influenced not only their
independence but also their integrity in the manner in which they conducted the issues raised.
70
Liquidators of Ace Class Precision Engineering Pte Ltd (in members’ voluntary liquidation) v Tan Boon Hwa and
others and other matters [2022] 3 SLR 539; [2021] SGHC 134 [Singapore].
71
Idem, at [102].
Page 21
Foundation Certificate: Module 9
to the company’s financial position, the company’s solvency, the effects of potential insolvency
and any alternatives to insolvency.
Austin AM has provided some useful insights into pre-appointment work by commenting:
“…insolvency practitioners’ pre-appointment work must be carried out from ‘outside the tent’;
i.e., it should always be clear that the insolvency practitioners are providing advice to the
decision-makers rather than making decisions themselves.”72
It would also make sense for the CIP to set out the nature and extent of prior consultations in a
disclosure statement. This would facilitate improved transparency and help prevent accusations
of a lack of independence.
CASE STUDY
Re Korda, Ten Network Holdings Ltd (Admn Apptd) (Recs and Mgrs Apptd) [2017] FCA 914
[AUSTRALIA]
In this case the administrators’ firm had been involved in reviewing the company’s financial
position for several months prior to their appointment. The question before the court was
whether they should be allowed to continue to act as administrators given their “long-term,
substantial and remunerative involvement” with the company.
It is a longstanding practice and especially commonplace for large and complex companies
to engage CIPs to undertake a contingency plan in the event that it becomes necessary to
appoint a CIP. Such a practitioner is usually referred to as a “potential” or “putative”
practitioner. It is assumed that the potential CIP would be able to quickly step into their role
and be able to commence it seamlessly, or that they would be able to “hit the ground running”.
In the matter of Korda the court elaborated on the nature of modern day corporate
restructuring and the importance of early intervention and being prepared to act when and if
necessary.
In hearing evidence it was generally accepted that the administrators’ firm in this case
refrained from providing advice to the board of directors, the creditors or any other
stakeholders. The nature of the work done by the firm related to deposing the management
in order to form an understanding of the company’s operations, financial position, legal and
contractual obligations and cash flow. Based on this information a transformation plan could
be developed and, in the event of it being unsuccessful, a draft administration plan. It was
noted also that neither of the appointed administrators were involved in any of the work
described above. Nor did either of them meet with any of the board members or management
of the debtor prior to their appointment.
72
Robert Austin AM, ‘The duty of independence’ (20230 35(1) ARITA J, 24.
Page 22
Foundation Certificate: Module 9
The Australian Securities and Investments Commission (ASIC), appearing as amicus curiae,
submitted the following statement (with which the court concurred):
“Directors contemplating potential insolvency should be encouraged to engage with
appropriately-qualified professionals early to develop restructuring plans which will maximise
the chance of rescuing a viable business or returning as much value as possible to the relevant
stakeholders should a later appointment prove necessary. A reasonable fair-minded observer
would appreciate that as a common characteristic of large and complex corporate distress
situations. Provided that appropriate safeguards are put in place to avoid the existence or
appearance of conflict should an appointment subsequently prove necessary, significant,
long-term and consequently remunerative work undertaken for such purposes should not of
itself preclude the practitioner from taking a formal appointment (subject of course to
consideration of the facts and circumstances of each particular case).
The court held that these “safeguards” could include: that the potential administrator makes
it clear to the board of directors and executives that she or he is the person who might become
the actual administrator if other measures to fix the company’s finances do not succeed as well
as proper record keeping of all of the meetings held and tasks performed
In this case the court did not find actual or apprehended bias or conflict (despite the
substantial pre-appointment work) as the administrators work in this regard was limited to
certain aspects and the engagement did not involve any advice to the company or its
directors.
CASE STUDY
Re 1 Blackfriars Limited (in liquidation) [2021] EWHC 684 (Ch)
[ENGLAND AND WALES]
The English case of Re 1 Blackfriars Limited (in liquidation) also focused on the administrators’
conduct prior to appointment.
A big issue in the case was the fact that the administrators informed the appointing creditor
that the administration would be a “light touch” administration and that this would mean a
less expensive administration as there would be limited or no day-to-day management work
for the administrators to perform. This approach to administration is often adopted when an
asset realisation is planned rather than a rescue or going concern sale of the business.
However, in this case the independence and impartiality of the administrators were drawn
into question due to their “agreement” to this approach with the appointing creditor. It also
came to light during the proceedings that the creditor in question thought that they would be
able to guide the administration, effectively influencing the administration of the estate and
the proper functioning of the administrators.
Page 23
Foundation Certificate: Module 9
Ultimately the court found no impropriety by the administrators and no evidence of any
improper influence but the case does illustrate the scrutiny an IP’s conduct and
communication pre-appointment will invite.
5.3.2 Appointment
In many jurisdictions the CIP can be appointed by either the board of directors or a stakeholder
(usually a shareholder or creditor). This may lead the appointee to expect that the practitioner
would prioritise their interests. In some instances, these persons, being the “principal”, even
believe that it is within their power to influence the CIP. Thus, it is vitally important for the CIP to
be aware of his responsibilities in this regard. The practitioner should not make any promises to
those who appointed him and should make it very clear that he is expected to act in the interests
of all the beneficiaries. The duty of independence also obliges the CIP to scrutinise each given
situation prior to accepting an appointment. Such scrutiny would include reasonable steps to
determine any possible association or conflict of interest with any stakeholder.
5.3.3 Subsequent appointments
Subsequent appointments refer to a scenario where the same CIP is allowed to act in different
insolvency capacities in relation to the same debtor company. In some jurisdictions, such as
England and Wales and Singapore, CIPs are allowed to be appointed in this manner.73
Subsequent appointments pose problems in relation to independence and impartiality due to
the self-review and self-interest threat it creates. The Insolvency Code of Ethics of the Institute of
Chartered Accountants of England and Wales (ICAEW) recognises the potential conflict of
interest in this regard and utilised the scenario “sequential insolvency appointments” as an
example of circumstances that might lead to a self-review threat being created.74 A self-review
threat refers to a situation where a CIP, due to being involved in prior decision-making, will not
be able to appropriately evaluate the results of previous judgements made or services
rendered.75
The self-interest threat relates to the issue of remuneration of the CIP. The reason subsequent
appointments might pose an issue in relation to the remuneration of the CIP, is that the CIP will
be remunerated twice for work done in relation to the same company. A self-interest threat
refers to a situation where the interests (including financial interests) of the CIP might
inappropriately influence his judgement or behaviour.76 An example of a way in which a
subsequent appointment and the corresponding subsequent remuneration might influence the
behaviour of the CIP, could be that a rescue or turnaround practitioner might not put his best
effort into saving the debtor from liquidation due to the fact that he knows he would
73
In South Africa this is prohibited by statute.
74
ICAEW Insolvency Code of Ethics, 2114.1 A5(b)(ii), available at https://www.icaew.com/-/media/corporate/
files/technical/ethics/insolvency-code-of-ethics.ashx?la=en.
75
Idem, 2114.1 A4(b).
76
Idem, 2114.1 A4(a). See also INSOL Principles, p 10 for a definition of “self-interest” – “A situation in which a
Member has, or is perceived to have, a direct interest in obtaining a particular outcome: for example, where such
Member (or a close associate) is also a creditor or shareholder of the insolvent estate.”
Page 24
Foundation Certificate: Module 9
subsequently be appointed as the liquidator and be paid again. CIPs who engage in subsequent
appointments often hold the view that the previous appointment does hold some benefits and
advantages in the subsequent appointment (such as institutional knowledge) and as
professionals have the opinion that they are able to act with independence and impartiality. In
jurisdictions where subsequent appointments are allowed, the opinion is held that the benefits
outweigh the risks.
In certain jurisdictions subsequent appointments in relation to the same debtor company are
prohibited due to the threats expressed above. South Africa is a good example of this. The South
African Companies Act of 2008 provides that a business rescue practitioner may not be
appointed as the liquidator of the debtor in subsequent liquidation proceedings.77 As already
mentioned, other jurisdictions such as England and Wales,78 Singapore and New Zealand79
permit subsequent appointments.
5.3.4 Secret monies and personal transactions with the company
The CIP should act in the best interests of the beneficiaries of his duties at all times and in all
transactions. As a fiduciary, a CIP is not allowed to make a secret profit at the expense of the
beneficiaries, or place himself in a position where his personal interests (or that of parties related
or connected to him) conflict with his duties. If his judgement was influenced by the fact that he
stands to gain personally from a decision, it cannot be said that he was acting in the best interests
of the beneficiaries of his duties. This is of particular importance in situations where the CIP (or
family / friend of the CIP) would like to purchase assets from the company. This could in effect
place the CIP at both ends of the contract, which may cause a strong suspicion that the
practitioner, being a fiduciary, is serving his own interests instead of those of the beneficiaries.80
There are also a number of ways in which the CIP would be able to manipulate such a transaction
for his own benefit, for example fixing an advantageous price, as the CIP would have knowledge
of the bare minimum the company would accept and drafting (or having input into the drafting
of) a contract with favourable clauses.81 To this end it is important that a CIP follows the necessary
procedural steps (disclosure) and obtains the necessary informed consent where a jurisdiction
permits transactions between the CIP and the company.
The CIP’s duty to act with independence and impartiality therefore encapsulates the same values
as the familiar “no-profit” and “no-conflict” rules in Corporate Law and underpins his duty of
undivided loyalty to the beneficiaries.
77
Companies Act 71 of 2008, s 140(4).
78
An example can be found in the Insolvency Act 1986, Sch B1, para 83(7)(b), which allows for an administrator to
be a liquidator in a subsequent appointment.
79
Companies Act 2003, s 239ABY provides that the administrator is to be the default liquidator. This section was
inserted into the Act by the Companies Amendment Act of 2006.
80
J Shepherd, The Law of Fiduciaries (Carswell 1981), 157 – “Put another way, the rule could be expressed: there is
a heavy presumption that a person who has acted on both sides of a transaction, on one side as a fiduciary and
on the other side in his individual capacity, has used his fiduciary powers to benefit himself.”
81
Ibid.
Page 25
Foundation Certificate: Module 9
The no-profit rule determines that a fiduciary may not profit from his position of trust (his position
as CIP) and thereby be unjustly enriched, for example by receiving secret kick-backs or
commissions.
The no-conflict rule determines that a fiduciary my not allow a conflict to arise between his duty
and the interests of the beneficiaries, for example transacting with the debtor company in his
personal capacity.
CASE STUDIES
Commonwealth Bank of Australia v Irving [1996] 65 FCR 291 [AUSTRALIA]
This case perfectly illustrates that even without any actual bias shown, personal relationships
with stakeholders can result in a lack of independence due to the perception created
thereby.
The CIP (Mr Irving), a chartered accountant, was appointment as the administrator in terms
of the Australian Corporations Act Pt5.3A for the debtor company, NPC. At that time the
company had only one director, Mr Roberts. Approximately two weeks prior to the
commencement of the proceedings, Mr Townsend and Mr Shergold had resigned as
directors of the company.
Mr Irving and Mr Townsend had known one another for 16 years. Mr Townsend, a legal
practitioner, had at numerous times acted as legal adviser to Mr Irving in his practice as a
chartered accountant. The two also partook in the same charity events and sport activities in
relation thereto. These charity events were also widely publicised.
Moreover, prior to commencement of the insolvency proceedings Mr Irving had provided
consultation services to the company regarding its financial position. As part of his services
he had also engaged in discussions with one of the company’s major secured creditors (a
bank).
Two of the company’s creditors sought the removal of Mr Irving as administrator of the
company due to his lack of independence.
It is important to note the following:
(a) Mr Irving had disclosed his relationship with the directors and the company before
taking the appointment and stated therein that he believed that he would still be able
to act in an independent manner;
(b) There was no factual evidence of any impropriety by Mr Irving as administrator and no
party suggested anything to the contrary;
Page 26
Foundation Certificate: Module 9
(c) the situation was somewhat exacerbated by the fact that the law firm where Mr
Townsend was employed acted as solicitors for Mr Irving in this matter.
Important comments made by the court:
As the administrator of the company, Mr Irving would have had to investigate the affairs of
the company and also the conduct of the directors, including that of Mr Townsend, to
determine whether or not any action should be taken against them or any of them. His
relationship with Mr Townsend created the perception that Mr Irving held Mr Townsend’s
judgment in high regard and relied on his professional advice and judgment. In the court’s
view a reasonable person would have trouble believing that (despite Mr Irving’s assertions
to the contrary) he would be able to conduct said investigation without any bias.
The court noted that although nobody had made any allegations against the propriety of Mr
Irving’s conduct, the mere fact that he had a longstanding friendly and professional
relationship with Mr Townsend would create doubt with a fair-minded person that he would
be able to perform his duties in an independent manner and therefore it would not be
appropriate for Mr Irving to continue as the administrator of the company. There must not
be any bias and there must not be any appearance or perception of bias. This relationship
created a familiarity threat for the CIP.82
The involvement of Mr Irving as an advisor in the pre-commencement business of the
company was also mentioned. It is fairly common place for companies and their
management to meet with advisors who are ultimately appointed in an official capacity as
CIPs. The court mentioned that not all prior involvement would lead to a lack of
independence but that in this case it was capable of giving rise to questions of a possible
lack of independence. Substantial involvement with a company prior to its administration will
disqualify a person from appointment as that company's administrator. Such involvement
will be seen to detract from the ability of the person to act fairly and impartially during the
course of an administration. Substantial involvement prior to commencement of the
proceedings could create both advocacy83 and self-review84 threats for the CIP.
Comments:
Mention was also made of Mr Irving’s disclosure of the relationship, yet it did not influence
the outcome of the proceedings. This is indicative of the belief that declaring an interest
does not remedy the situation.
82
A situation in which a Member’s relationship to a stakeholder impairs (or is perceived to impair) such Member’s
impartiality and objectivity owing to the Member being too sympathetic or antagonistic to the interests of others.
See the glossary of terms in Appendix B for a description.
83
A situation in which a Member promotes a position or opinion to the point that subsequent objectivity may be
compromised (eg, the Member has acted on behalf of a significant creditor to advance such creditor’s position).
In such a case, it is unlikely that other creditors would consider the Member to be impartial.
84
A situation in which actions taken by a Member, such Member’s firm, a close associate, or a close associate’s firm
is (or is perceived to be) subject to review only by such Member (eg, where a Member’s firm carried out the
disposal of certain assets of the insolvent estate prior to insolvency, and there are suspicions that the disposal is
in some way improper).
Page 27
Foundation Certificate: Module 9
Ventra Investments Ltd v Bank of Scotland Plc [2019] EWHC 2058 (Comm)
[ENGLAND AND WALES]
This case brought renewed scrutiny to the practice of accountancy firms that enter into
relationships with lenders as part of the lender’s “insolvency panel”.
The case is complex in as far as facts and legal issues are concerned and consequently this
case study will focus only on the facts and legal issues relevant to the CIPs’ duties of
independence and impartiality.85
The relationship giving rise to an issue in this case was based on Ventra Investments’
Administrative Receivers’ firm (BDO) being on the Lloyds “insolvency panel”, which is
essentially a preferred status enjoyed by certain firms that then win regular work from the
bank. This became a troublesome issue when a subsidiary of Lloyds, the Bank of Scotland,
became embroiled in a legal battle with the debtor company, Ventra Investments, in a case
concerning among other things certain transactions made at an undervalue.
According to the liquidators of Ventra Investments, there were issues relating to the
independence and impartiality of the administrative receivers taking an appointment when
they were so closely linked to one of the stakeholders. The liquidators also claimed that the
administrative receivers were “effectively under the control” of the bank and therefore
unduly favoured the lender. They believed the relationship influenced the administrative
receivers to exhibit a reluctance to take legal action against the bank.
An unwillingness legally to challenge wrongdoing by a creditor is an obstacle to performing
their duties as CIPs in the best interest of the creditors as a whole. Although the
administrative receivers’ firm denied that their relationship with the bank would cause a lack
of independence and impartiality, the perception created by this relationship (and some
facts) could lead to an informed observer forming the opinion that the CIPs might not be
objective in the performance of their duties.
Comments:
Great care should be taken to assess appointment opportunities in order to avoid taking an
appointment where an actual or perceived conflict of interest might arise.
85
You can investigate the finer details of this case and read some interesting media reports by visiting the following
links:
https://www.casemine.com/judgement/uk/5d43fad72c94e04a9677bf66;
https://www.bmmagazine.co.uk/news/lloyds-banking-group-ordered-to-explain-relationship-with-insolvency-
firms/;
https://www.thetimes.co.uk/article/lloyds-banking-group-under-scrutiny-for-insolvency-ties-67q0nxrb2?wgu=
270525_73669_1597751206018_d2f08448a2&wgexpiry=1605527205&utm_source=planit&utm_medium=affili
ate&utm_content=30828.
Page 28
Foundation Certificate: Module 9
Self-Assessment Exercise 2
In order to learn more about your own jurisdiction’s requirements in relation to independence
and impartiality and to educate yourself as to what is expected of you in this regard, investigate
whether your own jurisdiction provides for this duty or, alternatively, what any regulatory or
recognised professional body in your jurisdiction advises in this regard. Be specifically on the
lookout for provisions in relation to prohibited or worrying relationships and the test for
compliance.
For commentary and feedback on self-assessment exercise 2, please see APPENDIX A
5.4 Professional / technical competence
Principle 3 – Professional / Technical Competence
Professional / Technical Competence
Members and their firms should maintain an acceptable level of professional competency.
This may be achieved by:
• keeping current with legislative / regulatory changes;
• undertaking continuing professional education; and
• undertaking sufficient case work to remain experienced
Commentary
Members and their firms should be sufficiently and appropriately experienced and
resourced to deal with the engagements and cases they accept or can call upon specialists
or further resources as required.
Accepting cases where a Member cannot give them the level of attention or technical
expertise required to deliver the best result for stakeholders may bring such Member and
the profession into disrepute.
Even where there may not be continuing education or qualification requirements, Members
should endeavour to maintain a high level of competency in their field in order to deliver
the services they are engaged to perform and in accordance with any statutory duties.
Page 29
Foundation Certificate: Module 9
IPs are often regarded as experts in turnaround, restructuring and liquidation. As such, members
of the public and more specifically stakeholders in an insolvency expect that IPs have the
requisite experience and technical competence to perform the duties associated with their
appointments. This expectation is further emphasised by the fact that IPs are remunerated as
skilled professionals.
This ethical principle is one that requires an exceptional level of self-realisation and introspection
by the IP. It is important that professionals know the limitations of their own knowledge, skills
and experience (and diaries). As such, when an area of deficiency is identified it is of paramount
importance that the IP, as fiduciary, ensures that he educates himself in order to enable him to
act in the best interest of his beneficiaries. The principle of professional and technical
competence and the duty of care placed on the IP require that an IP should only accept
insolvency appointments when the IP has or can acquire sufficient expertise. Moreover, IPs
should not accept appointments when they are already under a heavy case load and would not
be able to provide the level of attention required by the appointment.
It is also trite that the Law is dynamic and often changes to accommodate changes in practice,
politics, culture and the environment. IPs should endeavour to keep abreast of changes to the
law or practice in their field. Many jurisdictions provide opportunities for continued professional
development and arrange short courses and conferences for IPs to brush up on the latest
developments.86
This ethical principle is also closely related to the duty of care, skill and diligence. When a
company is in financial distress, it is extremely important that the person who is appointed as
CIP does not act recklessly with regard to the affairs and property of the company. It is possible
that the objectives of the insolvency proceedings (to protect the interests of stakeholders) can
be frustrated through the incompetence and carelessness of the practitioner. It is clear from
these statements that a practitioner who undertakes too many case appointments, or one who
fails to meticulously perform his duties, might be in breach of the duty to act with care, skill and
diligence and may be held personally liable for any loss due to his actions or omissions.
In this regard it could be useful to utilise the recognised two-fold test in relation to the duty of
care skill and diligence.87 The CIP’s conduct should be measured against that of a reasonable
CIP.88 This implies that it should be established whether he acted with the same degree of care,
86
For information regarding educational course offered by INSOL International, see www.insol.org/education. For
information regarding the technical content of conferences, seminar and webinars presented by INSOL
International, see www.insol.org/events.
87
An objective test is to be applied in order to determine what the reasonable person would have done in the same
situation, as well as a subjective test that takes into account the general knowledge, skill and experience of that
specific person.
88
Re Charnley Davies Ltd 1990 BCC 605 at 618 – “An administrator must be a professional insolvency practitioner.
A complaint that he has failed to take reasonable care in the sale of the company’s assets is, therefore, a complaint
of professional negligence and in my judgment the established principles applicable to cases of professional
negligence are equally applicable in such a case. It follows that the administrator is to be judged, not by the
standards of the most meticulous and conscientious member of his profession but by those of an ordinary, skilled
practitioner. In order to succeed the claimant must establish that the administrator has made an error which a
reasonably skilled and careful insolvency practitioner would not have made.” They are not to be judged by the
standard of the “most meticulous and conscientious member of the profession” – see also Re 1 Blackfriars Limited
Page 30
Foundation Certificate: Module 9
skill and diligence that may reasonably be expected of a reasonable practitioner in the same
circumstances, having regard also to his personal attributes and qualifications.
A CIP can, however, be regarded as an expert in insolvency practice as a result of his experience
and training and hence an even higher standard is to be met with regard to the subjective test.
As an expert, a CIP should to a certain extent be able to be subjected to the test of a reasonable
expert.89 Due to the fact that CIPs will have varying degrees of experience and training, the
subjective elements of the test are important and ought to be applied on a case-by-case basis
in order to determine whether there was any breach in duty.
This approach seems to be aligned with the guidance provided by UNCITRAL:90
“One approach may be to require the insolvency representative to observe a
standard no more stringent than would be expected to apply to the debtor in
undertaking its normal business activities in a state of solvency, that of a prudent
person in that position. Some States, however, may require a higher standard of
prudence in such a case because the insolvency representative is not dealing
with its own assets, but with assets belonging to another person.”
A professionally competent CIP will act with the necessary care, should obtain an adequate
degree of understanding of the nature of the company's business in order to understand how
the business functions and exactly what is expected of him/her.91 The CIP should also acquire
knowledge of the industry in which the company operates.
Self-Assessment Exercise 3
Julie is a well-known insolvency practitioner and is often sought out for her knowledge and
expertise, especially in relation to retail insolvency. She currently has 10 ongoing insolvency
matters (most of them quite complex) relating to retail insolvency and has almost exclusively
only dealt with retail insolvencies for the last 5 years.
(in liquidation) [2021] EWHC 684 (Ch) at 247 and Re HTL [2021] SGHC 86 where the High Court cited and applied
Re Charnley in the context of a challenge of the exercise of discretion on the part of a judicial manager. On appeal,
the court affirmed the decision of the High Court. See [2021] SGCA 87.
89
R Bradstreet, “The leak in the Chapter 6 lifeboat: Inadequate regulation of Business Rescue Practitioners may
adversely affect lenders’ willingness and growth of the economy” [2010] 22 SAMLJ 195 at 209.
90
UNCITRAL Guide, p 184, para 61.
91
R Mokal and J Armour, “The new UK Corporate Rescue Procedure – The Administrator’s Duty to Act Rationally”
[2004] 1 International Corporate Rescue 1, 6 – “So for example, not to take into account reasonably discoverable
factors relevant to determining whether the continuation of the company as a going concern (by preserving for
its benefit the specific skills and knowledge of the local market of its pre-distress shareholder-managers, say)
would result in better expected returns for its creditors than if the company’s business were to be sold off to
another company (with little knowledge of and enjoying no goodwill in market), would be to ignore considerations
relevant to serving the creditors’ interests, and would thus constitute a breach of duty.”
Page 31
Foundation Certificate: Module 9
Due to her impressive curriculum vitae, she is contacted by a very large mining company in
distress inquiring whether she would be able to take the appointment as an administrator. Julie
does not feel like she has the level of expertise to accept this appointment.
Question 1
What would you advise Julie to do in these circumstances?
Question 2
If Julie was to accept the appointment and something went wrong, could she be held liable for
a breach of her duty of care?
Question 3
As an administrator in the retail industry, Julie has from time-to-time had to deal with the online
sales component of many retailers. She therefore lists “online sales” on her CV as part of the
section titled “additional skills and experience”. Does this change or modify Julie’s duty to
exercise her functions to the standard of an ordinary, reasonably skilled and careful practitioner?
For commentary and feedback on self-assessment exercise 3, please see APPENDIX A
5.5 Professional behaviour
Principle 4 – Professional Behaviour
Professional Behaviour
Communication with stakeholders should be used to inform and educate them on the
progress of a case. Members should strive to be accurate, honest, clear, succinct and timely.
It is in the best interests of all parties for Members to co-operate and communicate in a
professional manner with other Members and adjudicating bodies. Nonetheless, a
Member’s duty is to the estate.
When promoting themselves, or their firm, or when competing for work, Members should
act with integrity and should avoid bringing the profession into disrepute.
Page 32
Foundation Certificate: Module 9
Commentary
It is important to provide information about the progress of, and potential recoveries in, the
proceedings to those parties with any tangible interest in such proceedings (including but
not limited to creditors and shareholders). This does not mean that Members can or should
be expected to respond to every query raised.
Disseminating information should be balanced with maintaining commercial and other
confidentiality obligations, and Members should consider the cost of preparing the
response against the benefit of such response.
In a high-profile case, many persons without a tangible interest in the case might demand
information. Members should weigh the advantages of providing the information against
the associated cost and disruption to the company or estate. Decisions should be made in
the best interests of the estate and its stakeholders.
Duties should be carried out in a timely fashion, respecting legislative time limits. Members
should strive to complete cases efficiently, without undue delay.
Although Members are naturally in competition for engagements, Members have a
common interest in upholding standards for the insolvency profession.
Members should not allow their personal relationships with other Members (or the hope of
obtaining work) to unduly influence or adversely affect their dealings with the estate. In
particular, where different Members are appointed over different estates or divisions of a
company group, a Member should act in the interests of their allotted portion of the estate
and its stakeholders, which should prevail over the interests of the collective group in the
event of a conflict. For example, agreeing to a collective settlement that would leave the
individual estate to which a Member is appointed in a worse position than could be
obtained by another course of action would be contrary to such duty.
As part of a profession that is often the subject of public scrutiny, it is important that an IP always
conducts himself in a manner that reflects the standards and customs associated with the
profession.
Due to the nature of insolvency proceedings and the impact on the immediate community and
society, IPs are often asked to comment on ongoing procedures whether informally by
colleagues, friends and family or formally by media outlets. In this regard IPs should take care
not to divulge any confidential information. Confidentiality forms part of the fiduciary duty to act
in good faith. The IP will acquire a vast amount of sensitive information, sometimes even before
being formally appointed. Client lists, trade secrets, confidential business discussions and
internal financial statements constitute examples of information and sources of information that
will be disclosed to the IP. The fact that corporate information can in modern times be regarded
as one of a company’s most valuable commodities, makes confidentiality a significant obligation
Page 33
Foundation Certificate: Module 9
of the restructuring CIP in the context of a struggling company.92 The IP must, therefore, be
careful not to disclose (even inadvertently) any confidential information to third parties. An IP
may also not use any information gleaned from his position as fiduciary to facilitate a personal
benefit or benefit for a person related to the CIP and should be careful not to be guilty of insider
trading or using information to compete with the company. It is also essential that the IP refrains
from divulging sensitive information lest it damages the goodwill and reputation of the
company. Clearly, therefore, the IP’s duty to good faith has a significant impact on the success
of the insolvency proceedings.
The principle of confidentiality therefore imposes an obligation on IPs to refrain from:
• disclosing confidential information acquired as a result of professional and business
relationships without proper and specific authority, unless there is a legal or professional
right or duty to disclose;
• making improper use of confidential information acquired as a result of professional and
business relationships to their personal advantage or the advantage of third parties; and
• publishing or divulging without just cause to any person any confidential information or
details concerning the business, affairs, trade secrets, patents, technical methods or
processes of any estate in respect of which they hold an appointment.
An IP must maintain confidentiality, including in a social environment, being alert to the
possibility of inadvertent disclosure, particularly to a close business associate or a close or
immediate family member.
In the wake of the Coronavirus Pandemic, many IPs across the globe have had to adapt their
practice in order to comply with local government advice and restrictions on work and
movement. A great number of IPs and their support staff have been working from their homes
and conducting confidential meetings and dealing with confidential correspondence in a less
secure environment than that which is provided by their firms’ offices. It is imperative that IPs
take steps to ensure that their compliance with the duty in relation to confidentiality remains
intact and that their risk management procedures in this regard remain robust. This is important
seeing as jurisdictions are still struggling with the pandemic and in many countries there are still
measures in place to limit the spread of the disease.
Another important aspect of the IP’s duties to the beneficiaries is to communicate with the
stakeholders93 in a timely fashion and, as stated earlier, this should be done in an honest and
truthful matter. The stakeholders in the insolvency proceedings will have varying degrees of
92
J Shepherd, The Law of Fiduciaries (Carswell 1981) 326-327 – “Like other intellectual property, information must
be treated as property because it exhibits so many of the characteristics of property. Money is spent to acquire it,
and both the possessors and those who want it consider it very valuable. Like other assets, information is bought,
sold, and protected in many of the same ways.”
93
In the matter of Swiss Cottage (38) Properties Lid (in liquidation) and in the matter of Swiss Cottage (40) Properties
Limited (in liquidation) [2022] EWHC 1495 (Ch) [England and Wales] This case is a good example of IPs failing to
communicate in the correct way with certain creditors.
Page 34
Foundation Certificate: Module 9
knowledge and understanding of how the procedure works.94 This sometimes leads to conflicts
between parties as not everyone has the same clear understanding of what the process involves.
The IP, as fiduciary, should make use of the opportunities presented to him to not only inform
the stakeholders of relevant issues but also to educate them. As such, transparency forms an
integral part during the IP’s appointment. Transparency and fiduciary duties are inextricably
linked. As fiduciaries, IPs have a duty to account.95
Dickfos reflects on the fact that the type of information and comprehensiveness thereof is
extremely important. She notes that often “too much” information is provided for the average
unsecured creditor; she further questions whether the information provided is meaningful and
able to be understood and states that stakeholders tend not to read documents that are too
lengthy.96 Communication with the stakeholders provides an excellent opportunity to manage
their expectations. They have unrealistic views97 as to what the IP will do and what the outcomes
of the procedure will be. If these expectations are not met by the IP, stakeholders might feel that
he “failed” and did not do his job properly. The IP should make use of the opportunity to educate
stakeholders as to his role and the tasks to be performed in order to minimise any possible
disputes. This would, however, only be feasible if the stakeholders have trust and confidence in
the IP.
Another important aspect in relation to professional behaviour by IPs is advertising and
marketing. IPs should refrain from making exaggerating or misleading claims about services
offered, qualifications and expertise. In order to not bring the profession into disrepute, IPs
ought not to make any unsubstantiated or disparaging comments on the work or qualifications
of other IPs.
In an age where a great deal of professional networking happens via social media, a word of
caution is appropriate. IPs should apply sense and care when posting about their work and their
views. A seemingly innocuous social media post can create a great deal of trouble for IPs who
wish to maintain the perception that they are competent and independent professionals.
94
J Dickfos, “The Costs and Benefits of Regulating the Market for Corporate Insolvency Practitioner Remuneration”
(2016) 25 Int Insolv Rev, 56. Dickfos refers to the lack of practical knowledge, experience and judgement of
stakeholders that contribute to “information asymmetry”.
95
Kao Chai-Chau Linda v Fong Wai Lyn Carolyn [2015] SGHC 260, [2016] 1 SLR 21, 31 [24] [Singapore]; Mirror Group
Newspapers plc v Maxwell (No 2) [1998] I BCLC 638, 648 [England].
96
J Dickfos, “The Costs and Benefits of Regulating the Market for Corporate Insolvency Practitioner Remuneration”,
(2016) 25 Int Insolv Rev, 61.
97
Ibid.
Page 35
Foundation Certificate: Module 9
Self-Assessment Exercise 4
Question 1
Jason, as the administrator of a large construction company with several government contracts,
has been asked to give a television interview on the progress of the proceedings. What are the
factors that Jason should consider when deciding to grant the interview?
Question 2
It is only risky to provide media interviews and not when you are having a social gathering with
family and friends. True or false?
For commentary and feedback on self-assessment exercise 4, please see APPENDIX A
5.6 Remuneration and disbursements
Principle 5 – Remuneration
Remuneration
Members are entitled to remuneration for their work (necessary or beneficial, and properly
performed). Members should maintain and provide sufficient information to the body
approving such remuneration (where applicable) in order to allow an informed decision on
whether the remuneration is reasonable. Remuneration should only be drawn in
accordance with the approval obtained (if applicable).
Commentary
Remuneration is a very sensitive subject. Where applicable law does not provide
procedures or standards for remuneration, it is important to carefully consider the manner
in which Members request and provide justification for remuneration (or pay themselves
where no approvals are required by law or professional guidance).
Acceptable methods of calculating remuneration may include but are not limited to:
• Fixed fee;
Page 36
Foundation Certificate: Module 9
• Percentage of the value of the assets realised and / or the value of distributions made;
• Hourly, or otherwise based on the time properly spent on attending to the case;
• Contingent fee arrangement; and
• Combination of the above methods.
The terms of any contingent fee arrangement (including remuneration based on realised
value) should be transparent, objectively measurable, and if applicable agreed or
approved by the proper authority or stakeholders.
Members should be able to justify the work performed, for example, by demonstrating that
it is required by law (for example, certain jurisdictions may require reports to regulators,
which do not benefit stakeholders, but which serve a public interest), or that such work is
reasonable in light of the:
• complexity of the case;
• degree of responsibility falling upon Members;
• effectiveness of Members in carrying out their duties;
• value and nature of the estate assets and liabilities; and
• benefit therefrom accruing to the estate.
It is helpful to distinguish between disbursements, remuneration, and third-party costs
billed to the estate.
Disbursements which are a direct recovery of costs paid by Members or their firms to a third
party (e.g., travel costs) should be disclosed.
Disbursements that may arise from a recharge or allocation of costs incurred by Members
or their firms and contain a profit element (e.g., a charge for use of a meeting room to hold
a statutory meeting) should be approved, where applicable, in the same way as
remuneration.
Third party costs are not considered remuneration or disbursements and, accordingly,
should be disclosed separately in accordance with local law and regulation.
Page 37
Foundation Certificate: Module 9
5.6.1 Remuneration
One of the biggest culprits in reducing the public’s confidence and trust in the insolvency
profession, is the issue of remuneration.98 This is exacerbated by the media and others placing
an emphasis on seemingly excessive remuneration claims by CIPs. For example, shortly after the
collapse of the English construction giant Carillion, the right honourable Frank Field MP, the
chair of the UK House of Commons’ Work and Pensions Committee, commented on the GBP
44.2 million to be paid in fees to PwC in relation to one year’s Insolvency work on Carillion as
“milking the cash cow”.99
Despite the controversies often related to remuneration, it remains a crucial part of any
insolvency regime. CIPs are entitled to receive reasonable remuneration that is commensurate
with their qualifications, experience, and the risks involved in the particular case. Due to the fact
that the duties of IPs are sometimes daunting and their appointment involves a great degree of
risk, it is important that a balance is struck between risk and reward in order to attract
appropriately qualified professionals to perform these tasks.100
The various methods for calculating remuneration are dealt with below.
5.6.1.1 Fixed fees
As the name suggests, this fee is based on an amount that has been fixed by legislation or the
profession. The UNCITRAL Legislative Guide mentions that CIP remuneration may be fixed, but
it does not elaborate or provide further guidance on how this could be incorporated into the
laws of a specific jurisdiction.101 In most jurisdictions that allow for a fixed fee to be charged it
can be, or is, used in combination with other methods of calculation.
An issue with a fixed fee element awarded to an IP in relation to work carried out in the
performance of his duties, is that it might not be representative of the value of the work done. It
is possible for an IP to receive remuneration based on this method of calculation, but it may be
that the IP invested more time and resources to complete the work than is reflected in the fee
and therefore his remuneration is not commensurate with his efforts and the work performed.
On the other hand, an IP might have to do very little work in a particular case and would be paid
the same amount.
98
D Brown and C Symes, “Submission to Senate Inquiry into Liquidators and Administrators” [2009] 1-7; J Dickfos,
“The Costs and Benefits of Regulating the Market for Corporate Insolvency Practitioner Remuneration” (2016) 25
Int Insolv Rev 56,57. Even in 1998, when the seminal remuneration case of Mirror Group Newspapers plc v Maxwell
(No 2) [1998] I BCLC 638 [England] was decided, Ferris J noted that “[i]n recent years there has been a good deal
of concern as the result of a fairly general perception that costs in insolvency cases have reached an unacceptably
high level.”
99
The Times, 7 February 2019. Referring to the insolvency practitioners’ fees, he commented: “In this they are ably
assisted by a merry little bank of advisors and auditors, conflicted at every turn and with every incentive to milk
the cash cow dry.” There are many more examples of global headlines casting CIPs in a very dim light, eg, “Rangers
liquidators rack up £5m fees as creditors offered 3p in the pound” – Daily Record, 27 January 2020 –
https://www.dailyrecord.co.uk/news/scottish-news/rangers-liquidators-rack-up-5m-21366070.
100
UNCITRAL Guide, p 181, para 53.
101
Ibid – “It may be fixed by reference to an approved scale of fees set by a government agency or professional
association”.
Page 38
Foundation Certificate: Module 9
A fixed fee cannot be said to represent a fair method of calculating remuneration, unless the
remuneration framework allows for the adjustment of the fee in cases where it proves necessary.
5.6.1.2 Percentage-based fees
Percentage-based remuneration can be based on either a percentage of realisations of assets
or on a percentage of distributions to creditors.
The strongest criticism against a percentage-based approach relates to proportionality. The
UNCITRAL Guide states that IPs often find this to be an uncertain method to calculate
remuneration, as the amount of work involved in the administration will not necessarily be in
proportion to the value of the distributable assets.102 This again means that the possibility exists
that the IP would do more work than what he will be remunerated for. However, this method of
fee calculation does provide some incentive for IPs to ensure that assets will be sold for the
highest possible price – the higher the price assets are sold for, the higher the fee. It also
provides creditors with some form of certainty as to the fee that will be claimed by the IP, which
makes the calculation of risk a lot easier.
5.6.1.3 Time-based fees
Perhaps one of the most contentious ethical issues in relation to the remuneration of IPs is the
profession’s partiality for charging based on time. Despite the contentiousness of the issue it
remains the preferred method for calculating the remuneration of IPs in many jurisdictions, as it
is believed to provide for a fair compensation for work done.103
It is accepted that IPs making use of this calculation method are to be remunerated only for “time
properly spent on attending to the case”.104
The rate of calculation on which the remuneration is to be based could be the IP’s own hourly or
daily rate, or a rate prescribed by legislation or the profession to which the IP belongs.
The UNCITRAL Guide submits that this system might operate to incentivise time spent on the
administration without necessarily achieving any outcome.105 Moreover, that it is also possible
that this method of calculating remuneration might not be reflective of actual work done by the
IP.106
Time-based fees were considered in the seminal case of Mirror Group Newspapers plc v
Maxwell,107 where Ferris J stated three important principles in relation to time-based costing. He
stated that:
102
Idem, p 181, para 55.
103
Idem, p 181, para 54.
104
INSOL Principles, Principle 5, p 7.
105
UNCITRAL Guide, p 181, para 54.
106
This implies that a practitioner might be getting more or less than what he deserves in terms of performance.
107
Mirror Group Newspapers plc v Maxwell (No 2) [1998] I BCLC 638 [England].
Page 39
Foundation Certificate: Module 9
(a) time spent represents the cost of rendering services, not the value of the service rendered;
(b) time spent should be only one of a number of relevant factors to assess value; and
(c) it follows from the first two that the real task is to assess value and not cost.108
However, it will only be possible to make an assessment regarding the value of the services ex
post facto. The case also addressed the issue of time-based costing not being reflective of work
that was performed.109 This is especially true of prescribed fees. It is quite possible for an IP to
do more work than what the prescribed hourly / daily rate allows; equally so, it might be the
case that an IP is remunerated for more than the actual work performed. IPs often criticise the
amount prescribed for hourly rates as they believe it does not clearly represent the full account
of the costs of running an insolvency procedure.
5.6.1.4 Contingency fees
Contingency fee arrangements have long been a bone of contention in the insolvency world.
These arrangements are also known as “success fees” or in some jurisdictions as “conditional
fees”. As the name suggests, these are fee arrangements which determine that the IP would be
entitled to receive remuneration based on a specific outcome or condition being met. The
outcome or condition usually pertains to a favourable outcome for stakeholders, for example
the successful implementation of a rescue plan. One reason for the controversy surrounding
contingency fee arrangements is that the conditions and outcomes on which the fee is payable
are arguably conditions and outcomes that IPs, as fiduciaries, should aspire to anyway and
would therefore form part of their remit. Another issue can be found in the diverting of an IP’s
focus to a singular task that will benefit his fee arrangement, instead of allowing his approach to
be holistic. There would not be an ethical issue in the event of a contingency fee being paid for
the achievement of a truly remarkable outcome and these outcomes should always be
objectively measurable. It should not merely be an achievement in the eyes of the IP.
In Singapore, the Insolvency Practitioner Association’s Code highlights that a firm (and therefore
an IP) entering into a contingent fee arrangement is an example of a circumstance that creates
a self-interest threat.110 This means that in their estimation, an IP creates a conflict of interest due
to his own financial interests being directly linked to certain outcomes, which could impair his
judgment and influence his decision-making.
5.6.1.5 Combination fees
Many jurisdictions allow for a combination of the abovementioned methods to be utilised in the
determination of the quantum of IP remuneration.111 Each of the methods have advantages and
108
Idem, at 652.
109
Ibid.
110
IPAS Code of Professional Conduct and Ethics, p 18 at para 7.4. Note that this is barred in relation to advocates
and solicitors in Singapore, and IPs who are lawyers will need to comply with applicable rules in relation to
contingent fee arrangements.
111
Australia, England and Wales and Russia, by way of example.
Page 40
Foundation Certificate: Module 9
disadvantages. Allowing for a combination of methods provides the opportunity to utilise the
best of each whilst the drawbacks, in as far as ethical behaviour is concerned, can be avoided.
In most jurisdictions the decision regarding how the fee is constituted rests with the IP. In some
cases it might be predetermined.112
It is imperative that the IP is able to justify his remuneration and that the remuneration that he
claims is fair, reasonable and proportionate in the circumstances. In order to determine whether
the remuneration is reasonable, the following factors are usually considered: the complexity of
the case; whether any aspects of the case creates any responsibility of an exceptional kind or
degree for the officeholder; the effectiveness with which the officeholder carried out the duties
of the office; and the value and nature of the property with which the officeholder had to deal.113
In order to place the IP in the best possible position to justify his remuneration, the IP must be
able to account. As fiduciaries, IPs have a duty to account.114 Transparency is a key component
to ethical behaviour by the CIP. Moreover, transparency and fiduciary duties are inextricably
linked. In the case of Mirror Group Newspapers plc v Maxwell,115 Ferris J emphasised the
fiduciary nature of the CIP’s office and related this effectively to remuneration and the duty to
account. Ferris J stated that, as fiduciaries, IPs have a duty to protect, get in, realise and pass on
to others assets and property that do not belong to themselves but to their beneficiaries.116 What
an IP retains for himself out of the property which he controls as an officeholder will no longer
be available for those towards whom he is a fiduciary.117 Because an IP is not expected to act
gratuitously, he cannot account for the retention by paying it over. The only way in which to
account for it is by showing that he ought to be allowed to retain it. This duty to account brings
about an obligation to justify expenses incurred, including an obligation to justify and explain
the remuneration claimed in exercising the duties of the office.118
It is important that an IP be transparent regarding his fees and the cost of proceedings from the
outset. The level of detail required should be proportionate to the complexity of the
appointment.119 Understanding the steps to be taken in a case with a complex set of facts or
legal issues, would necessarily require a more detailed explanation in order to place parties in
the best position to appreciate what steps are required.
112
In Russia, eg, the combination is predetermined.
113
Variations of these factors can be found in several jurisdictions.
114
Kao Chai-Chau Linda v Fong Wai Lyn Carolyn [2015] SGHC 260, [2016] 1 SLR 21, 31 [24] [Singapore]; Mirror Group
Newspapers plc v Maxwell (No 2) [1998] I BCLC 638, 648 [England].
115
Mirror Group Newspapers plc v Maxwell (No 2) [1998] I BCLC 638 [England].
116
Idem, at 648.
117
Ibid.
118
Mirror Group Newspapers plc v Maxwell (No 2) [1998] I BCLC 638, 648 [England]; Re Peregrine Investments
Holdings Ltd [1998] 3 HKC 1 [Hong Kong]; Kao Chai-Chau Linda v Fong Wai Lyn Carolyn [2015] SGHC 260, [2016]
1 SLR 21, 31 [24] [Singapore]; S Steele, M Wee and I Ramsay, “Remunerating Corporate Insolvency Practitioners
in the United Kingdom, Australia and Singapore: The Roles of Courts” (2018) 13 AsJCL 141,147.
119
Kao Chai-Chau Linda v Fong Wai Lyn Carolyn [2015] SGHC 260, [2016] 1 SLR 21, 32 [27] [Singapore].
Page 41
Foundation Certificate: Module 9
5.6.2 Disbursements and expenses
5.6.2.1 Generally
Both the UNCITRAL Guide and the INSOL Principles elaborate on the fact that an IP will invariably
come across the need to incur certain expenses during the course of the administration of the
estate (administrative costs).120
Although the remuneration claimed by IPs tends to be a contentious issue, the disbursements
and expenses can also have a significant impact on the value of the estate. It would, therefore,
be fair to say that in light of the fiduciary nature of his position the IP has a duty to minimise the
extent of the impact of these administrative costs. Moreover, incurring these expenses is
dependent upon the IP’s commercial judgement, reasonably exercised.
The need for record keeping121 and the duty to account122 prevail in the case of administrative
costs and the IP’s transparency should continue when disclosing payment of these costs.
The INSOL Principles defines disbursements and third-party costs as follows:
“Disbursements – Sums paid by a Member or its firm to third parties or a
recharge or allocation of costs incurred by Members or their firms which is
charged to the estate.”123
Disbursements thus referring to monies paid by the IP for expenses incurred by the IP as part of
the discharge of his duties. This serves to reimburse the IP. Costs pertaining to travel are an
example of this.
Third-party costs are defined by the INSOL Principles as follows:124
“Third-party costs – Sums paid directly from the estate to a third-party supplier.
The third-party supplier invoices the estate.”
Third-party costs therefore consist of payments made to parties who rendered services to the
estate and which were not paid by the IP or his firm. Utility bills and costs pertaining to continued
trade are examples of this.
120
UNCITRAL Guide, p 4, a. “…claims that include costs and expenses of the proceedings, such as remuneration of
the insolvency representative and any professionals employed by the insolvency representative, expenses for the
continued operation of the debtor, debts arising from the exercise of the insolvency representative’s functions
and powers, costs arising from continuing contractual and legal obligations and costs of proceedings”.
121
Mirror Group Newspapers plc v Maxwell (No 2) [1998] I BCLC 638, 649 [England]; INSOL Principles, p 8 – “It is in
Members’ (and their agents and service providers) interests to implement policies, procedures and systems to
ensure reasonable and proper: record-keeping…”
122
Mirror Group Newspapers plc v Maxwell (No 2) [1998] I BCLC 638, 648 [England].
123
INSOL Principles, p 9.
124
Idem, p.10.
Page 42
Foundation Certificate: Module 9
5.6.2.2 Disbursements
As part of the IP’s duty to account, he should be able to justify payments to third parties and
should take responsibility for subjecting the bills of third parties to scrutiny.125
The difficulty in quantifying disbursements made to professionals (other than legal
professionals) was highlighted in Mirror Group Newspapers plc v Maxwell,126 where the court
was confronted with an unusual expense paid to a firm of public relations consultants. The court
stated that it did not have the kind of information it needed in order to form a judgement on the
matter and identified the consequential need for a proper explanation by the officeholders.127
In such cases, where insufficient information regarding somewhat obscure disbursements has
been given, practitioners should expect the disbursement to be subjected to careful scrutiny.128
As part of his fiduciary duty to account, an IP should still be able to provide transparent and full
disclosure as to the nature and need of the expenses incurred.
In Singapore, Rajah J stated that “some measure of restraint and discipline”129 is needed in
recouping disbursements. The court touched on the seemingly innocuous disbursement of
photocopying charges, which could be very substantial in major matters. The court confirmed
the principle laid out in Mirror Group Newspapers plc v Maxwell,130 by stating that an IP would
still need to provide sufficient particulars in order to establish whether these expenses were
reasonably necessary.131
In Australia, Finkelstein J stated that a practitioner should act with the same care as a prudent
businessman would act in his own affairs when dealing with disbursements.132 He mentions that
a prudent businessman will only litigate as a last resort and, if it is unavoidable, will keep it under
close scrutiny. A prudent businessman will shop around to ensure the best legal advice at the
best rates by negotiating for the best fees and monitoring the fees incurred.133 “Personal
relationships should not obscure the practitioner’s duty. The sole selection criteria should be the
benefit to him as litigant. So he will avoid cosy relationships with solicitors and counsel.”134 Here
an important ethical issue regarding the use of service providers comes to the fore. The nature
of their professional work might lead to familiarity issues being created between IPs and certain
service providers. The familiarity issues give rise to a lack of independence, creating a conflict
of interest. This is to be avoided in order to enhance the trust and confidence in the IP and the
insolvency regime.
In the Singaporean Kao case, the court identified two further issues in relation to disbursements:
125
Mirror Group Newspapers plc v Maxwell (No 2) [1998] I BCLC 638, 639 [England].
126
Idem, at 662.
127
Ibid.
128
Ibid.
129
Re Econ Corp Ltd (No 2) [2004] SGHC 49, 264, 286 [59] [Singapore].
130
Mirror Group Newspapers plc v Maxwell (No 2) [1998] I BCLC 638 [England].
131
Re Econ Corp Ltd (No 2) [2004] SGHC 49, 264, 287 [59] [Singapore].
132
Re Korda; in the matter of Stockford Ltd (2004) 140 FCR 424, 443 [51] [Australia].
133
Ibid.
134
Re Korda; in the matter of Stockford Ltd (2004) 140 FCR 424, 443 [51] [Australia]; Kao Chai-Chau Linda v Fong Wai
Lyn Carolyn [2015] SGHC 260, [2016] 1 SLR 21, 44 [58] [Singapore].
Page 43
Foundation Certificate: Module 9
(a) allegations of over-servicing, referring to all instances in which unnecessary work was
performed; and
(b) allegations that work was duplicative, particularly where other professionals (such as
lawyers) were engaged.135
Both of these issues to some extent relate back to the duty of the practitioner to act with care. A
careful IP would make sure that no unnecessary tasks are performed and would be careful to
not do work that has already been done, or allow service providers to charge for work already
performed.
As fiduciaries, IPs do not have an automatic right to recover all expenses (not even if they were
incurred in good faith) unless the expenses were reasonably incurred in the discharge of their
stewardship.136
5.6.2.3 Third-party costs
Third-party costs are paid directly from the debtor’s estate and therefore also have an effect on
beneficiaries’ interests by diminishing the estate. These administrative expenses, although paid
directly from the estate of the debtor, are still executed by the IP or under his supervision.
These expenses might relate to the payment of utilities or suppliers in the case of continued
trade.
5.6.2.4 Legal professionals
One of the most contentious administrative costs is those paid to legal professionals. This is due
to the fact that multiple sets of professionals (IPs and legal professionals) translate to multiple
sets of professional fees and disbursements.
It is possible that the services of legal professionals (lawyers and counsel) can be paid as
disbursements or third-party costs. This was carefully illustrated in the Singaporean Kao case by
Chong J.137 The court explained that the costs of legal professionals can be claimed i) as part of
the IP’s disbursements,138 or ii) the costs can be billed separately and directly to the debtor
company.139
When the costs are claimed as disbursements, the onus is on the IP, as the party responsible for
the payment, to consider whether the bill is reasonable and appropriate given the
135
Kao Chai-Chau Linda v Fong Wai Lyn Carolyn [2015] SGHC 260, [2016] 1 SLR 21, 23 [Singapore].
136
Idem, at 35 [32].
137
Idem, at 44.
138
Kao Chai-Chau Linda v Fong Wai Lyn Carolyn [2015] SGHC 260, [2016] 1 SLR 21, 44 [57] [Singapore]. As was the
case in Mirror Group Newspapers plc v Maxwell (No 2) [1998] I BCLC 638, 660 [England] – Ferris J stated that
where the solicitors were engaged in providing legal services in connection with the CIP’s appointment there is a
contract between the parties and CIPs will be personally bound to pay solicitors for work done in accordance with
that contract.
139
Kao Chai-Chau Linda v Fong Wai Lyn Carolyn [2015] SGHC 260, [2016] 1 SLR 21, 44 [59] [Singapore].
Page 44
Foundation Certificate: Module 9
circumstances.140 This reasoning is reminiscent of that expressed in Australia by Finkelstein J in
Korda,141 where it was stated that the IP should exercise his commercial judgement when hiring
legal professionals and that a prudent IP would monitor the fees claimed by these
professionals.142
When the costs of legal professionals are not claimed as disbursements but billed to the
company, the issues relating to the monitoring of the fees and scrutiny of the bill prevail. A new
issue in relation to this type of administrative costs is the one of duplication of work done by the
legal professional.143 In such a situation the burden rests on the CIP to justify claims for work
performed when there are other professionals instructed on the same matter.144 In the
Dovechem145 case, the court was confronted with a complaint by the majority shareholders of
the company that the liquidators had charged four times more than the solicitors that were
instructed to institute action on behalf of the company. At first glance it would appear that the
liquidators in the case had duplicated the work done by the legal professionals, but the
liquidators successfully proved that the work done by them in relation to the case was very
different from that of the solicitors.146
In certain jurisdictions, such as South Africa and England and Wales, the CIP appointed to
perform a rescue or turnaround of a debtor might not be trained in law or have specialised legal
knowledge and as such would at times have to rely on expert advice at a certain cost. That is
why it is sensible to include guidance on engaging legal professionals in codes of conduct.
The new Insolvency Code of Ethics by the Institute for Chartered Accountants of England and
Wales (ICAEW) addresses this issue with remarkable clarity and sensible advice.147 In a section
dealing with the specialist advice and services, the ICAEW Code requires that when an IP intends
to rely on the advice or work of a third party the IP should evaluate whether such advice or work
is warranted.148 The Code also requires an IP to document the reasons for choosing a specific
service provider.149 Additionally, where a professional or personal relationship exists between
the IP and the service provider, the Code suggests full disclosure of the relevant relationship
and the process be undertaken to evaluate whether the service will be the best value for the
140
Idem, 44 [57].
141
Re Korda; in the matter of Stockford Ltd (2004) 140 FCR 424, 443 [51] [Australia].
142
Re Korda; in the matter of Stockford Ltd (2004) 140 FCR 424, 443 [51] [Australia]; Kao Chai-Chau Linda v Fong Wai
Lyn Carolyn [2015] SGHC 260, [2016] 1 SLR 21, 44 [57] [Singapore].
143
Kao Chai-Chau Linda v Fong Wai Lyn Carolyn [2015] SGHC 260, [2016] 1 SLR 21, 44 [59] [Singapore].
144
Ibid.
145
Liquidators of Dovechem Holdings Pte Ltd v Dovechem Holdings Pte Ltd [2015] 4 SLR 955 [Singapore].
146
Idem, at [46] – “The Liquidators had to establish the facts and find the documents supporting those facts in order
to instruct the lawyers and to obtain legal advice on how the statement of claim should be amended. It is not
surprising that the work of the Liquidators involved checking many boxes of documents since Suit 833 involved
several years of the plaintiff’s operations (it related to the employment of an allegedly phantom employee) and
the Liquidators had not run the Company or the plaintiff at the material time. In this case, the time spent by the
Liquidators and that spent by the lawyers cannot be compared and the fees of the Liquidators cannot be assessed
by reference to the lawyers’ fees.”
147
The ICAEW Insolvency Code of Ethics is based on the International Ethics Standards Board for Accountants Code,
effective from 1 May 2020 and is available at https://www.icaew.com/-/media/corporate/files/technical/
ethics/insolvency-code-of-ethics.ashx?la=en.
148
ICAEW Insolvency Code of Ethics, R2320.3.
149
Idem, R2320.4.
Page 45
Foundation Certificate: Module 9
creditors.150 In order to establish whether the service provider will be offering best value and
service, the IP would have to consider:151
(a) the cost of the service, the expertise and experience of the provider;
(b) whether the provider holds appropriate regulatory authorisation; and
(c) the professional and ethical standards applicable to the service provider.
The requirements and guidance set out in the Code could be applied effectively to the use of
legal professionals. Where an IP requires the advice and services of a legal professional he
should be able to show that it is indeed necessary and should be able to explain why he chose
a specific legal professional. Where he has a relationship that could create the perception that
he is not independent from the legal professional, he should disclose the relationship to the
stakeholders. He should also be able to provide details of the process he followed to make sure
the service provider would offer the best value for the beneficiaries.
Self-Assessment Exercise 5
Many jurisdictions allow for contingency fees or conditional fee arrangements. What does this
remuneration method entail? What are the main ethical issues associated with the use of this
method of remuneration and are there any safeguards for the use thereof?
For commentary and feedback on self-assessment exercise 5, please see APPENDIX A
5.7 Practice management
Principle 6 – Practice Management
Practice Management
It is in Members’ (and their agents and service providers) interests to implement policies,
procedures and systems to ensure reasonable and proper:
• record-keeping;
• quality control;
150
Idem, R2320.6 A6(b).
151
Idem, R2320.4 A.
Page 46
Foundation Certificate: Module 9
• risk management;
• compliance management;
• complaints management; and
• professional indemnity / fidelity insurance (where available).
Commentary
Members should endeavour to perform their duties in a timely fashion, respecting legislative
time limits.
Members should consider and obtain, where required or reasonably available, appropriate
professional indemnity and / or fidelity insurance in keeping with the best interests of
stakeholders.
Professional indemnity insurance provides redress to stakeholders in the event a Member
acts negligently.
Fidelity insurance protects stakeholders in the event a Member (or a Member’s staff)
defrauds the estate.
5.7.1 General
The manner in which an IP manages his practice will reflect his commitment to performing his
fiduciary duties and his concern for the interests of the beneficiaries of those duties.
It is not expected of IPs to perform all the duties and obligations of their appointment personally
and as such they often make use of administrative and other forms of assistance in administering
the estate. The IP should therefore ensure that there are policies, procedures and systems in
place in order to facilitate an efficient service delivery by all involved in the process. The policies
and procedures will usually entail guidance on the aspects dealt with below.
5.7.2 Record-keeping
Not only is it important to keep proper records for remuneration and disbursement purposes
but it is also good practice for IPs to keep records in order to justify their decisions should they
be challenged or reviewed at a later stage. An IP might be expected to demonstrate the steps
taken and the conclusions reached in identifying, evaluating and responding to any
circumstance. The records the practitioner maintains in relation to the steps taken and the
conclusions reached should be sufficient to enable the courts and a reasonable and informed
Page 47
Foundation Certificate: Module 9
third party to form an opinion on the appropriateness of the IP’s actions. IPs should keep a
record of the facts pertaining to the case, who they had interactions with as well as any
communications with parties involved in the matter. It would also be sensible for the IP to note
his thoughts on the courses of action he considered as well as the reasons why he ultimately
chose a particular course of action.152 This type of record-keeping will act as a safety measure
should his decisions be questioned.
5.7.3 Quality control
The IP should ensure that there are policies and procedures to apply and monitor quality control
of engagements. Quality standards are often set by the profession itself as well as recognised
professional bodies that aim to regulate the profession. It could also be set by the IP’s firm. These
are important measures to ensure that the profession is not brought into disrepute by the
negligent and shoddy work of IPs and also to ensure that the remuneration claimed by the IP is
for work properly undertaken. It is imperative that the personnel assisting the IP also adhere to
these standards and, most importantly, that the IP oversees that work done by people other than
himself adhere to the standards.
5.7.4 Risk management
The process of risk management entails the identification, assessment and control of threats to
the IP’s practice and / or appointment. Threats could be caused by various different sources,
including but not limited to: Information Technology threats and data-related breaches (IPs hold
a great deal of sensitive information), financial security, legal liabilities and of course accidents
and natural disasters. These types of threats can cost the IP or his practice / firm money, or cause
it to permanently close. Risk management policies and procedures aim to minimise the risks and
costs involved before they transpire by allowing the IP / firm to make plans for unexpected
eventualities. It will help to protect the IP, his firm and its assets, as well as the IP’s clients, from
potential harm. In being able to identify certain threats it will allow the IP to make sure that his
and the firm’s insurance needs are met (see the discussion on indemnity and fidelity insurance
below).
5.7.5 Compliance management
Many aspects of an insolvency appointment are governed by legislation or secondary
legislation, as well as soft law in some places (such as codes of conduct). IPs should take care to
comply with the provisions of these sources where a specific aspect is dealt with. Compliance
provision could, for example, relate to the performance of certain duties within a specified time.
Policies and procedures should be put in place to ensure that the IP complies with the standards
and regulations that apply to the profession. The people assisting the IP will thereby also be
informed of what is expected of the IP.
152
There is an alternative opinion held that an IP need only keep records that would assist in justifying his actions by
making reference to them and that he is not required to set out the chain of reasoning which caused him to take
a particular action – see Birdi v Price & Pettit [2018] EWHC 2843 (Ch) at para 77.
Page 48
Foundation Certificate: Module 9
5.7.6 Complaints management
As circumstances in insolvency can at times be difficult and even volatile for stakeholders, it
would be sensible if the IP allowed for complaints to be lodged. This would enable the IP to
more effectively deal with the anxieties of parties involved in the process and perhaps even
resolve matters before they escalate. A serious complaint could also inform the IP that he would
need to consult the body of creditors, the court, or, in some cases, a legal advisor.
5.7.7 Professional indemnity / fidelity insurance
In many jurisdictions IPs are required to obtain insurance (professional indemnity or fidelity) in
protecting the best interests of the stakeholders. Indemnity insurance covers against the risk of
stakeholders instituting action against the IP for acting negligently (without reasonable care).
Fidelity insurance protects stakeholders in the event of the IP (or someone working for him)
acting dishonestly or defrauding the estate. Fraud in this sense does not necessarily refer to
criminal fraud.153 Given the extensive duties owed by IPs, it would be sensible for IPs to obtain
professional and fidelity insurance to protect themselves as well as the stakeholders in the
estate.
Self-Assessment Exercise 6
Explain the difference between professional and fidelity insurance and elaborate on why it is of
particular importance for IPs to obtain this type of insurance.
For commentary and feedback on self-assessment exercise 6, please see APPENDIX A
6. CONCLUSION
From the above discussion it is clear that the IP profession is one that requires the IP to act
honestly and in the best interest of the beneficiaries of his duties and with the necessary care
and skill at all times; all this while performing the intricate and complex tasks associated with the
administration of the insolvent estate. Moreover, IPs have to perform these duties and tasks
while undergoing immense public scrutiny. This is of course to be expected as they are the
skilled professionals who give themselves out as helpers in times of chaos and they get paid
really well to do so. Most IPs perform their duties with the standard of behaviour expected of
153
Fraud in this sense refers to instances of equitable or civil fraud relating to conduct which, having regard to some
special relationship between the two parties concerned, is an unconscionable thing for the one to do towards the
other. It might also refer to common law fraud which depends on dishonesty. In both cases the action or conduct
will fall short of the conduct expected to be prosecuted in criminal proceedings and might not even relate to
deceit.
Page 49
Foundation Certificate: Module 9
them but, due to the vast collection of duties and the differing backgrounds of IPs, they may
quite often fail in this endeavour.
Codes of professional conduct could be a helpful tool to remedy this situation. A code has the
ability to help the IP to understand what is expected of him and to be properly informed about
what can be done when a potential problem arises. INSOL International’s Ethical Principles for
Insolvency Professionals does an excellent job of explaining and elaborating on what is
commonly accepted as best practice ethical behaviour. One hopes that jurisdictions across the
world will make use of this resource and draft their own codes or principles.
Having a sound framework to ensure the ethical behaviour of members of the insolvency
profession will contribute to the public’s trust and confidence in the profession and in turn
strengthen the entire insolvency regime.
A final word of advice to bear in mind: A person who accepts the office of a fiduciary undertakes
the responsibility of ensuring that he or she understands the nature of the duty a fiduciary is
called upon to perform.154 Make sure that you know!
154
Daniels v Anderson [1995] 13 ACLC 614 [Australia].
Page 50
Foundation Certificate: Module 9
APPENDIX A: COMMENTARY AND FEEDBACK ON SELF-ASSESSMENT EXERCISES
Self-Assessment Exercise 1
Question 1
What are the most common elements associated with the existence of a fiduciary relationship?
Question 2
Identify the key fiduciary duties linked to Insolvency Professionals
Question 3
True or False? All Insolvency Professionals owe fiduciary duties.
Question 4
Identify the sources of ethical guidance available to jurisdictions when considering frameworks
for addressing the behaviour of Insolvency professionals
Question 5
True or False? Being truthful and being honest amount to the same thing.
Commentary and Feedback on Self-Assessment Exercise 1
Question 1
What are the most common elements associated with the existence of a fiduciary relationship?
A fiduciary is largely accepted to be a person i) who undertakes to act on behalf of another, and
ii) who has discretion and power over the interests of the other. A further element of vulnerability
is sometimes added as an indicator for the existence of a fiduciary relationship.
Question 2
Identify the key fiduciary duties linked to Insolvency Professionals.
- The duty to act in good faith, this duty implies honesty and fair dealing;
- The duty to act in the best interest of the beneficiary of the fiduciary duties,
- The duty to exercise the powers of the office in an independent and impartial manner, this
duty includes the duty to avoid a conflict of interest
Page 51
Foundation Certificate: Module 9
(The duty of care is not fiduciary in nature and should not be mentioned in answer to this
question.)
Question 3
True or False? All Insolvency Professionals owe fiduciary duties.
False, Not all Insolvency Professionals are regarded as fiduciaries as some appointments do not
comply with the elements that would normally characterise fiduciary relationships.
Question 4
Identify the sources of ethical guidance available to jurisdictions when considering frameworks
for addressing the behaviour of Insolvency professionals.
The INSOL International Ethical Principles for Insolvency Professionals; UNCITRAL Legislative
Guide on Insolvency Law; The World Bank’s Principles and Guidelines for Effective Insolvency
and Creditor Rights Systems; European Bank for Reconstruction and Development (EBRD)
Office Holder Principles.
Question 5
True or False? Being truthful and being honest are the same thing.
False, it would be possible for someone to be completely honest but not divulge all the
information at his disposal thereby being untruthful.
Self-Assessment Exercise 2
In order to learn more about your own jurisdiction’s requirements in relation to independence
and impartiality and to educate yourself as to what is expected of you in this regard, investigate
whether your own jurisdiction provides for this duty or alternatively what any regulatory or
recognised professional body in your jurisdiction advises in this regard. Be specifically on the
lookout for provisions in relation to prohibited or worrying relationships and the test for
compliance.
Page 52
Foundation Certificate: Module 9
Commentary and Feedback on Self-Assessment Exercise 2
This exercise is for enlightenment and to educate yourself on the rules that might apply to you
or that would apply to you in relation to performing your insolvency related duties in an
independent and impartial matter. You should look for relationships that might be prohibited
or even certain actions. Knowing what would get you in trouble is the first step of staying out of
it!
Self-Assessment Exercise 3
Julie is a well-known Insolvency Practitioner and is often sought out for her knowledge and
expertise especially in relation to retail insolvency. She currently has ten ongoing insolvency
matters (most of them quite complex) relating to retail insolvency and have almost exclusively
only dealt with retail insolvencies for the last 5 years.
Due to her impressive curriculum vitae she is contacted by a very large mining company in
distress inquiring whether she would be able to take an appointment as an administrator. Julie
does not feel like she has the level of expertise to accept this appointment.
Question 1
What would you advise Julie to do in these circumstances?
Question 2
If Julie was to accept the appointment and something went wrong, could she be held liable for
a breach of her duty of care?
Question 3
As an administrator in the retail industry, Julie has from time-to-time had to deal with the online
sales component of many retailers. She therefore lists “online sales” on her CV as part of the
section titled “additional skills and experience”. Does this change or modify Julie’s duty to
exercise her functions to the standard of an ordinary, reasonably skilled and careful practitioner?
Page 53
Foundation Certificate: Module 9
Commentary and Feedback on Self-Assessment Exercise 3
Question 1
The principle of professional and technical competence is one that requires an exceptional level
of self-realisation and introspection by the IP. Well done to Julie for knowing her limits!
It is important that professionals know the limitations of their own knowledge, skills and
experience (and diaries). As such, when an area of deficiency is identified it is of paramount
importance that the IP, as fiduciary, ensures that she educates herself in order to enable her to
act in the best interest of her beneficiaries.
The principle of professional and technical competence and the duty of care placed on the IP
require that an IP should only accept insolvency appointments when the IP has or can acquire
sufficient expertise.
In Julie’s case it might be possible for her to brush up on some knowledge of the mining
industry, given her current case load it might be difficult for her to administer all those estates
while taking on a new client in an area she does not know a lot about. She is allowed to make
use of the advice and services of other professionals as IPs are not required to be experts on
everything. However, the cost of using these professionals should be carefully considered. Julie
would have to consider all of these factors before making a decision on whether she would be
best placed to serve the interests of her beneficiaries should she decide to accept the
appointment.
Question 2
The two-fold test for breach of the duty of care would have to be applied in the case (explain the
test and apply it). Additionally - Re Charnley Davies Ltd 1990 BCC 605 at 618 – “In order to
succeed the claimant must establish that the administrator has made an error which a reasonably
skilled and careful insolvency practitioner would not have made.” They are not to be judged by
the standard of the “most meticulous and conscientious member of the profession”.
Question 3
Depending on her level of experience, the additional experience in online sales would not
change her duty to act with care in a way that would make it more onerous. As the facts suggest
that she sometimes has cases that involves an online sales element, her mere experience in the
matter only means that Julie will owe a duty to act as an ordinary, reasonably skilled and careful
insolvency practitioner, albeit one with experience in retail and online sales – see Re 1 Blackfriars
Page 54
Foundation Certificate: Module 9
Limited (in liquidation) [2021] EWHC 684 (Ch) at 205 [England and Wales]. Experience does not,
however, make the duty more onerous, only more specific.
Self-Assessment Exercise 4
Question 1
Jason, as the administrator of a large construction company with several government contracts,
has been asked to give a television interview on the progress of the proceedings. What are the
factors that Jason should consider when deciding to grant the interview?
Question 2
It is only risky to provide media interviews and not when you are having a social gathering with
family and friends. True or false?
Commentary and Feedback on Self-Assessment Exercise 4
Question 1
Jason should be mindful that giving information should be balanced with maintaining
commercial and other confidentiality obligations, and he should also consider the cost of
preparing the response against the benefit of such response. In other words what would be
gained and lost by divulging certain information. It is normal that in a high-profile case, many
persons without a tangible interest in the case might demand information. Again Jason should
weigh the advantages of providing the information against the associated cost and disruption
to the company or estate. Decisions should be made in the best interests of the estate and its
stakeholders. He should be mindful of his duty of confidentiality: not disclosing confidential
information acquired as a result of professional and business relationships, without proper and
specific authority, unless there is a legal or professional right or duty to disclose; making
improper use of confidential information acquired as a result of professional and business
relationships to their personal advantage or the advantage of third parties; and publishing or
divulging without just cause to any person any confidential information or details concerning
the business, affairs, trade secrets, patents, technical methods or processes of any estate in
respect of which they hold appointment.
Page 55
Foundation Certificate: Module 9
Question 2
False. An IP shall maintain confidentiality, including in a social environment, being alert to the
possibility of inadvertent disclosure, particularly to a close business associate or a close or
immediate family member.
Self-Assessment Exercise 5
Many jurisdictions allow for contingency fee or conditional fee arrangements. What does this
remuneration method entail? What are the main ethical issues associated with the use of this
method of remuneration and are there any safeguards for the use thereof?
Commentary and Feedback on Self-Assessment Exercise 5
As the name suggests these are fee arrangements which determine that the IP would be entitled
to receive remuneration based on a specific outcome or condition being met. The outcome or
condition usually pertains to a favourable outcome for stakeholders. One reason for the
controversy surrounding contingency fee arrangements is that the conditions and outcomes on
which the fee is payable are arguably conditions and outcomes that IPs, as fiduciaries, should
aspire to anyway and would therefore form part of their remit. Another issue can be found in the
diverting of an IP’s focus to a singular task that will benefit his fee arrangement instead of
allowing his approach to be holistic. There would not be an ethical issue in the event of a
contingency fee being paid for the achievement of a truly remarkable outcome and these
outcomes should always be objectively measurable.
Page 56
Foundation Certificate: Module 9
Self-Assessment Exercise 6
Explain the difference between professional and fidelity insurance and elaborate on why it is of
particular importance for IPs to obtain this type of insurance.
Commentary and Feedback on Self-Assessment Exercise 6
Indemnity or professional insurance covers against the risk of stakeholders instituting action
against the IP for acting negligently (without the reasonable care). Fidelity insurance protects
stakeholders in the event of the IP (or someone working for him) acting dishonestly or
defrauding the estate. Fraud in this sense does not necessarily refer to criminal fraud.
Given the extensive (and sometimes confusing) duties owed by IPs it would be sensible for IPs
to obtain professional and fidelity insurance to protect themselves as well as the stakeholders in
the estate.
Page 57
Foundation Certificate: Module 9
APPENDIX B: GLOSSARY OF TERMS155
Advocacy A situation in which a Member promotes a position or opinion to the
point that subsequent objectivity may be compromised (e.g., the
Member has acted on behalf of a significant creditor to advance such
creditor’s position). In such case, it is unlikely that other creditors would
consider the Member to be impartial.
Agent A person / firm employed under an engagement letter by the insolvent
estate (acting by a Member) to perform a task or provide a service: for
example, the employment of legal counsel.
Associate Persons connected to the Member in the capacity of (for example) a
personal friend or acquaintance, spouse, partner, civil partner,
employee, employer, colleague, a relative of the Member or the
Member's spouse or civil partner, the spouse or civil partner of a
relative of the Member or the Member's spouse or civil partner.
Close business Persons connected to the Member through professional means,
associate including via employment, partnership, directorships of or
shareholding in corporate entities or corporate trust arrangements.
Creditor A person who is, or claims to be, owed money by the insolvent estate,
whether or not such claim is ascertained, liquidated or contingent.
Disbursements Sums paid by a Member or its firm to third parties or a recharge or
allocation of costs incurred by Members or their firms which is charged
to the estate.
Estate The insolvent entity or its assets over which the Member has been
appointed insolvency practitioner in accordance with applicable law.
Familiarity A situation in which a Member’s relationship to a stakeholder impairs
(or is perceived to impair) such Member’s impartiality and objectivity
owing to the Member being too sympathetic or antagonistic to the
interests of certain others (e.g., where the Member is a close relative of
a significant creditor or shareholder, or of a director of the insolvent
estate).
155
The glossary of terms included in this appendix has been reproduced from the INSOL International publication
Ethical Principles for Insolvency Professionals, published in June 2019.
Page 58
Foundation Certificate: Module 9
Family Lineal ancestors / descendants (including step-parents). Dependent
relations-by- marriage in lineal relationship. Any other dependents
living within the household (adult or children).
A Member is related to another individual if they - (i) are married, or live
together in a relationship similar to a marriage; or (ii) are separated by
no more than two degrees of natural or adopted consanguinity or
affinity. A Member is related to a corporation, partnership or other
juristic person or entity if the individual directly or indirectly controls
such juristic person or entity.
Insolvency and Officeholders include formal and informal appointments such as
Restructuring Liquidator, Provisional Liquidator, Insolvency Administrator, Insolvency
Officeholders Trustee, Receiver, Restructuring Officer, and Insolvency Resolution
Professional.
Insolvency and IPs include professionals engaged in insolvency administration,
Restructuring restructuring and turnaround practice areas, and the advisers to those
Professionals engaged in these practice areas.
(“IPs”)
Intimidation A situation in which a Member is, or may be, threatened or pressured
(e.g., with litigation, unfounded complaints, or even physical harm).
Member Individual member of INSOL International authorised in accordance
with applicable law, practice and regulation to accept an engagement
or appointment in respect of an estate.
Regulator(s) Any recognised professional body charged with regulating the
profession of insolvency practitioners (whether solely or as part of a
wider body of professional regulation) in accordance with local law and
guidance.
Self-interest A situation in which a Member has, or is perceived to have, a direct
interest in obtaining a particular outcome: for example, where such
Member (or a close associate) is also a creditor or shareholder of the
insolvent estate.
Self-review A situation in which actions taken by a Member, such Member’s firm, a
close associate, or a close associate’s firm is (or is perceived to be)
Page 59
Foundation Certificate: Module 9
subject to review only by such Member (e.g., where a Member’s firm
carried out the disposal of certain assets of the insolvent estate prior to
insolvency, and there are suspicions that the disposal is in some way
improper).
Shareholder A person having an equity interest in the insolvent estate (ordinary,
preferred, restricted) as defined by local law and accounting standards.
Stakeholder A person having a tangible interest in the insolvent estate.
Tangible interest Financial (monetary or economic) interest, whether direct or indirect
(e.g., loss of employment).
Third party costs Sums paid directly from the estate to a third party supplier. The third
party supplier invoices the estate.
Page 60
Foundation Certificate: Module 9
INSOL International
6-7 Queen Street
London
EC4N 1SP
Tel: +44(0) 20 7248 3333 | Fax: +44(0) 20 7248 3384
www.insol.org
Page 1
Imbi Jürgen Teie: 04.06.2024 nr 1-2/421
Eesti Advokatuuri juhatuse liige
Meie: 05.06.2024 nr 12-1/2024-015-2
Vastus 04.06.2024 pöördumisele
Austatud Eesti Advokatuuri juhatuse kui haldusjärelevalveorgani liige
Maksejõuetuse teenistus tänab Teid pöördumise eest.
Juhime Teie kui haldusjärelevalve (kontrolli) organi liikme tähelepanu asjaolule, et Eesti
Advokatuuri juhatus kui maksejõuetusvaldkonnas seaduse alusel volitatud haldusjärelevalve
(kontrolli) organ AdvS § 46 lõike 3 alusel on jätnud seadusest tulenevad ülesanded ise täitmata.
Haldusõiguses ei saa üks haldusorgan ehk advokatuuri juhatus oma ülesandeid delegeerida
teisele haldusorganile ehk advokatuuri aukohtule.
Te olete varem (14.09.2023) teatanud, et mitte mingisugust järelevalvet Te
maksejõuetusvaldkonnas ei tee vandeadvokaatidest võlanõustajate, saneerimisnõustajate,
(sund)likvideerijate, ajutiste haldurite ja pankrotihaldurite üle. Maksejõuetuse teenistus taunib
Teie tekitatud olukorda, kuivõrd vandeadvokaatide rikkumisi on maksejõuetusvaldkonnas
tegelikult üllatavalt palju. Maikuu ülevaade haldusjärelevalves on Teile teadmiseks kättesaadav
siin: https://maksejouetus.konkurentsiamet.ee/2024#mai vt punkt 2.
Tulenevalt AdvS § 46 lg 3 on järelevalvet teostama asunud Maksejõuetuse teenistus lähtudes
muuhulgas maksejõuetusvaldkonnas rahvusvaheliselt ja riiklikult tunnustatud põhimõtetest ja
hea halduse tavast. Soovitame nii Teil kui ka ülejäänud advokatuuri juhatuse liikmetel ehk
järelevalveorganil kollegiaalselt tutvuda maksejõuetusvaldkonnas haldusorganile ehk
vandeadvokaadist avaliku ülesande täitjale kehtestatud käitumisnõuetega. Sissejuhatav materjal
on toodud käesoleva kirja manusena (vähemalt alates lk 16).
Maksejõuetuse teenistusele jääb Teie kirjast kohati mulje, et keegi teadlikult eksitab Teid.
Lugupidamisega
Tatari 39 / 10134 Tallinn / 667 2400 /
[email protected] / Registrikood 70000303
(digiallkirjastatud)
Maksejõuetuse teenistuse nimel
Signe Viimsalu
juhataja
Lisa: INSOL International. Ethics and Professional Ethics. 2023/2024
2 (2)