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
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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
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are trademarks of INSOL INTERNATIONAL.
Published: September 2023
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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;
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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].
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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.”
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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.”
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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.”
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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.
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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.”
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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.
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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.
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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.
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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.
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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.
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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.
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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.”
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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].
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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.
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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.
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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.
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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.
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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].
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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].
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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.
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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.
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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.”
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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.
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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;
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(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).
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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.
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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.
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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
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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.”
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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.
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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
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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.
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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.
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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;
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• 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.
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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”.
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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].
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(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.
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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].
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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.
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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].
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(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].
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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.
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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.
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• 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
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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.
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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.
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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].
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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
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(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.
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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?
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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
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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.
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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.
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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.
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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.
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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)
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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.
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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
ICAS CODE OF ETHICS
PART 5 – INSOLVENCY PRACTITIONERS
APPLICABLE FROM 1 MAY 2020
INSOLVENCY CODE OF ETHICS
LIST OF CONTENTS
GENERAL APPLICATION OF THE CODE
2000 Introduction
2100 Fundamental Principles
2110 Conceptual framework
2120 Breaches of the code
2130 Record keeping
2140 Ethical conflict resolution
SPECIFIC APPLICATION OF THE CODE
2200 Introduction
2210 Insolvency appointments
2300 Acting with sufficient expertise
2310 Conflicts of interest and professional and personal relationships
2320 Specialist advice and services
2330 Agencies and referrals
2340 Referral fees and commission
2350 Inducements, including gifts and hospitality
2360 Advertising and marketing for insolvency appointments
2370 Dealing with the assets of an entity
2380 The insolvency practitioner as an employee
2390 Responding to non-compliance with laws and regulations
2500 Application of the framework to specific situations
2510 – examples that do not relate to a previous or existing insolvency
appointment
2520 – examples relating to previous or existing insolvency appointments
2530 – examples in respect of cases conducted under Scots Law
2540 - application in the Republic of Ireland
Definitions and interpretation
1
The Practice of Insolvency
Introduction
2000.1 This Code sets out the obligations of insolvency practitioners to meet the ethical requirements
expected of them.
2000.2 An authorising body must, so far as is reasonably practicable, act in a way which protects and
promotes the public interest. This Code forms part of the framework used to meet this objective.
Requirements and Application Material
2000.3 A1 Requirements and application material are to be read and applied with the objective of
complying with the fundamental principles and applying the conceptual framework.
Requirements
2000.3 A2 Requirements are designated with the letter “R” and, in most cases, include the word “shall.”
The word “shall” in the Code imposes an obligation on an insolvency practitioner to comply with
the specific provision in which “shall” has been used.
2000.3 A3 In some situations, the Code provides a specific exception to a requirement. In such a situation,
the provision is designated with the letter “R” but uses “may” or conditional wording.
2000.3 A4 When the word “may” is used in the Code, it denotes permission to take a particular action in
certain circumstances, including as an exception to a requirement. It is not used to denote
possibility.
2000.3 A5 When the word “might” is used in the Code, it denotes the possibility of a matter arising, an
event occurring or a course of action being taken. The term does not ascribe any particular level
of possibility or likelihood when used in conjunction with a threat, as the evaluation of the level
of a threat depends on the facts and circumstances of any particular matter, event or course of
action.
Application Material
2000.4 A1 In addition to requirements, the Code contains application material that provides context
relevant to a proper understanding of the Code. In particular, the application material is intended
to help an insolvency practitioner to understand how to apply the conceptual framework to a
particular set of circumstances and to understand and comply with a specific requirement. While
such application material does not of itself impose a requirement, consideration of the material
is necessary to the proper application of the requirements of the Code, including application of
the conceptual framework. Application material is designated with the letter “A.”
2000.4 A2 Where application material includes lists of examples these lists are not intended to be
exhaustive.
R2000.5 In order to protect and promote the public interest, an insolvency practitioner shall
observe and comply with this Code. If an insolvency practitioner is prohibited from
complying with certain parts of this Code by law or regulation, the insolvency
practitioner shall comply with all other parts of this Code.
2000.5.A1 The Code establishes the fundamental principles of professional ethics for insolvency
practitioners and provides a framework for insolvency practitioners to:
a) identify threats to compliance with the fundamental principles;
b) evaluate the significance of the threats identified; and
c) apply safeguards, where available and capable of being applied, to reduce the threats to a
level at which an insolvency practitioner using the reasonable and informed third party test
would likely conclude that the insolvency practitioner complies with the fundamental
principles.
2
R2000.6 An insolvency practitioner shall use professional judgment in applying this framework.
2000.6 A1 The Code also describes how the ethical framework applies in certain situations. It provides
examples of actions that might be appropriate to address threats to compliance with the
fundamental principles. It also describes situations where no action can address the threats,
and consequently, the circumstance or relationship creating the threats needs to be avoided.
Scope
R2000.7 Insolvency practitioners shall ensure that the Code is applied at all times in relation to
the conduct of an insolvency appointment or circumstances which might lead to an
insolvency appointment.
2000.7A1 Arrangements regarding the level of fees for an insolvency appointment is set out in legislation.
The requirements of R330.3 A and R330.3 B relating to the provision of fee estimates only
applies to an insolvency appointment where legislation requires a fees estimate to be provided
by an insolvency practitioner.
R2000.8 Insolvency practitioners shall follow the fundamental principles, apply the conceptual
framework and specific requirements of the Code in all their professional and business
activities whether carried out with or without reward and in other circumstances where to
fail to do so would bring discredit to the insolvency profession.
R2000.9 Insolvency practitioners shall be guided not merely by the terms but also by the spirit of
the Code.
2000.9 A1 The Code provides examples of matters to take into account when insolvency practitioners are
considering their position, but ethical considerations are not limited to the examples. It is
necessary for insolvency practitioners to take into account how their conduct might be perceived
by a reasonable and informed third party.
R2000.10 Although, an insolvency appointment will be personal to the insolvency practitioner
rather than their firm or employing organisation, insolvency practitioners shall ensure
that work for which they are responsible, which is undertaken by members of the
insolvency team on their behalf, is carried out in accordance with the requirements of
this Code.
FUNDAMENTAL PRINCIPLES
General
2100.1 A1 There are five fundamental principles of ethics for insolvency practitioners:
a) Integrity – to be straightforward and honest in all professional and business relationships.
b) Objectivity – not to compromise professional or business judgments because of bias,
conflict of interest or undue influence of others.
c) Professional Competence and Due Care – to:
i. Attain and maintain professional knowledge and skill at the level required to
ensure that a client or employing organization receives competent professional
service, based on current technical and professional standards and relevant
legislation; and
ii. Act diligently and in accordance with applicable technical and professional
standards.
d) Confidentiality – to respect the confidentiality of information acquired as a result of
professional and business relationships.
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e) Professional Behaviour – to comply with relevant laws and regulations and avoid any
conduct that the insolvency practitioner knows or should know might discredit the
profession.
R2100.2 An insolvency practitioner shall comply with each of the fundamental principles.
2100.2 A1 The fundamental principles of ethics establish the standard of behaviour expected of an insolvency
practitioner. The conceptual framework establishes the approach which an insolvency practitioner
is required to apply to assist in complying with those fundamental principles. Paragraphs R2101.1
to R2105.1 A2 set out requirements and application material related to each of the fundamental
principles.
2100.2 A2 An insolvency practitioner might face a situation in which complying with one fundamental
principle conflicts with complying with one or more other fundamental principles. In such a
situation, the insolvency practitioner might consider consulting, on an anonymous basis if
necessary, with:
• others within the firm or employing organisation.
• those charged with governance.
• another insolvency practitioner from a different firm.
• a professional body.
• an authorising body.
• legal counsel.
However, such consultation does not relieve the insolvency practitioner from the responsibility to
exercise professional judgment to resolve the conflict or, if necessary, and unless prohibited by
law or regulation, disassociate from the matter creating the conflict.
INTEGRITY
R2101.1 An insolvency practitioner shall comply with the principle of integrity, which requires an
insolvency practitioner to be straightforward and honest in all professional and business
relationships.
2101.1 A1 Integrity implies fair dealing and truthfulness.
R2101.2 An insolvency practitioner shall not knowingly be associated with reports, returns,
communications or other information where the insolvency practitioner believes that the
information:
a) Contains a materially false or misleading statement;
b) Contains statements or information provided recklessly; or
c) Omits or obscures required information where such omission or obscurity would be
misleading.
2101.2 A1 If an insolvency practitioner provides a modified report in respect of such a report, return,
communication or other information, the insolvency practitioner is not in breach of paragraph
R2101.2.
R2101.3 When an insolvency practitioner becomes aware of having been associated with
information described in paragraph R2101.2, the insolvency practitioner shall take steps
to be disassociated from that information.
OBJECTIVITY
R2102.1 An insolvency practitioner shall comply with the principle of objectivity, which requires
an insolvency practitioner not to compromise professional or business judgment
because of bias, conflict of interest or undue influence of others.
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2102.1 A1 Objectivity is the state of mind which has regard to all considerations relevant to the task in
hand but no other.
R2102.2 An insolvency practitioner shall not undertake a professional activity if a circumstance or
relationship unduly influences the insolvency practitioner’s professional judgment
regarding that activity.
PROFESSIONAL COMPETENCE AND DUE CARE
R2103.1 An insolvency practitioner shall comply with the principle of professional competence
and due care, which requires an insolvency practitioner to:
a) Attain and maintain professional knowledge and skill at the level required to ensure
that a competent professional service is provided, based on current technical and
professional standards and relevant legislation; and
b) Act diligently and in accordance with applicable technical and professional
standards.
2103.1 A1 Professional competence requires the exercise of sound judgment in applying professional
knowledge and skill when undertaking professional activities.
2103.1 A2 Maintaining professional competence requires a continuing awareness and an understanding of
relevant technical, professional and business developments. Continuing professional
development enables an insolvency practitioner to develop and maintain the capabilities to
perform competently within the professional environment
2103.1 A3 Diligence encompasses the responsibility to act in accordance with the requirements of an
assignment, carefully, thoroughly and on a timely basis.
R2103.2 In complying with the principle of professional competence and due care, an insolvency
practitioner shall take reasonable steps to ensure that those working in a professional
capacity under the insolvency practitioner’s authority have appropriate training and
supervision.
R2103.3 Where appropriate, an insolvency practitioner shall make users of the insolvency
practitioner’s services or activities or their employing organisation aware of the
limitations inherent in the services or activities.
CONFIDENTIALITY
2104.1 A1 The principle of confidentiality is not only to keep information confidential, but also to take all
reasonable steps to preserve confidentiality. Whether information is confidential or not will depend
on its nature.
R2104.2 An insolvency practitioner in the role as office holder has a professional duty to report
openly to those with an interest in the outcome of the insolvency. An insolvency
practitioner shall always report on their acts and dealings as fully as possible given the
circumstances of the case, in a way that is transparent and understandable bearing in
mind the expectations of others and what a reasonable and informed third party would
consider appropriate.
R2104.3 An insolvency practitioner shall comply with the principle of confidentiality, which
requires an insolvency practitioner to respect the confidentiality of information acquired
as a result of professional and business relationships. An insolvency practitioner shall:
a) Be alert to the possibility of inadvertent disclosure, including in a social
environment, and particularly to a close business associate or an immediate or a
close family member;
b) Maintain confidentiality of information within the firm or employing organisation;
c) Maintain confidentiality of information disclosed by the employing organisation;
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d) Not disclose confidential information acquired as a result of professional and
business relationships outside the firm or employing organisation without proper
and specific authority, unless there is a legal or professional duty or right to
disclose;
e) Not use confidential information acquired as a result of professional and business
relationships for the personal advantage of the insolvency practitioner or for the
advantage of a third party;
f) Not use or disclose any confidential information, either acquired or received as a
result of a professional or business relationship, after that relationship has ended;
and
g) Take reasonable steps to ensure that personnel under the insolvency practitioner’s
control, and individuals from whom advice and assistance are obtained, respect the
insolvency practitioner’s duty of confidentiality.
2104.3 A1 There are circumstances where insolvency practitioners are or might be required to disclose
confidential information or when such disclosure might be appropriate:
a) Disclosure is required by law, for example:
i. producing statutory reports for the creditors of the insolvent;
ii. submitting reports on the conduct of directors of an insolvent entity;
iii. production of documents or other provision of evidence in the course of legal
proceedings; or
iv. disclosure to the appropriate public authorities of infringements of the law that come
to light;
b) Disclosure is permitted by law and is authorised by the employing organisation; and
c) There is a professional duty or right to disclose, when not prohibited by law:
i. To comply with the quality review of an authorising body;
ii. To respond to an inquiry or investigation by an authorising body or the oversight
body;
iii. To protect the professional interests of an insolvency practitioner in legal
proceedings; or
iv. To comply with technical and professional standards, including ethics requirements.
2104.3 A2 In deciding whether to disclose confidential information, factors to consider, depending on the
circumstances, include:
• Whether the interests of any parties, including third parties whose interests might be
affected, could be harmed if the client or employing organisation consents to the disclosure
of information by the insolvency practitioner.
• Whether all the relevant information is known and substantiated, to the extent practicable.
Factors affecting the decision to disclose include:
o Unsubstantiated facts.
o Incomplete information.
o Unsubstantiated conclusions.
• The proposed type of communication, and to whom it is addressed.
• Whether the parties to whom the communication is addressed are appropriate recipients.
R2104.4 An insolvency practitioner shall continue to comply with the principle of confidentiality
even after the end of the relationship between the insolvency practitioner and an
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employing organisation. When changing employment or accepting an insolvency
appointment , the insolvency practitioner is entitled to use prior experience but shall not
use or disclose any confidential information acquired or received as a result of a
professional or business relationship.
PROFESSIONAL BEHAVIOUR
R2105.1 An insolvency practitioner shall comply with the principle of professional behaviour,
which requires an insolvency practitioner to comply with relevant laws and regulations
and avoid any conduct that the insolvency practitioner knows or should know might
discredit the profession. An insolvency practitioner shall not knowingly engage in any
business, occupation or activity that impairs or might impair the integrity, objectivity or
good reputation of the insolvency profession, and as a result would be incompatible with
the fundamental principles.
2105.1 A1 Conduct that might discredit the insolvency profession includes conduct that a reasonable
and informed third party would be likely to conclude adversely affects the good reputation of the
profession.
2105.1 A2 The concept of professional behaviour implies that it is appropriate for insolvency practitioners to
conduct themselves with courtesy and consideration towards all with whom they come into
contact when performing their work.
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THE CONCEPTUAL FRAMEWORK
Introduction
2110.1 The circumstances in which insolvency practitioners operate might create threats to compliance
with the fundamental principles. This section sets out requirements and application material,
including a conceptual framework, to assist insolvency practitioners in complying with the
fundamental principles and meeting their responsibility to act in the public interest. Such
requirements and application material accommodate the wide range of facts and circumstances,
including the various professional activities, interests and relationships, that create threats to
compliance with the fundamental principles. In addition, they deter insolvency practitioners from
concluding that a situation is permitted solely because that situation is not specifically prohibited
by the Code.
2110.2 The conceptual framework specifies an approach for an insolvency practitioner to:
a) identify threats to compliance with the fundamental principles;
b) evaluate the threats identified; and
c) address the threats by eliminating or reducing them to an acceptable level.
Requirements and Application Material
General
R2111.1 The insolvency practitioner shall apply the conceptual framework to identify, evaluate
and address threats to compliance with the fundamental principles set out in paragraphs
2100 to 2105.
R2111.2 An insolvency practitioner shall take particular care to identify the existence of threats
that exist prior to or at the time of taking an insolvency appointment or which at that
stage, it might reasonably be expected could arise during the course of the insolvency
appointment.
R2111.3 In taking steps to identify any threats, an insolvency practitioner shall have regard to
relationships whereby the firm is held out as being part of a network.
R2111.4 When dealing with an ethics issue, the insolvency practitioner shall consider the context
in which the issue has arisen or might arise. Where an insolvency practitioner is
performing professional activities pursuant to the insolvency practitioner’s relationship
with the firm, whether as a contractor, employee or owner, the individual shall comply
with the provisions of this Code.
R2111.5 When applying the conceptual framework, the insolvency practitioner shall:
a) exercise professional judgment;
b) remain alert for new information and to changes in facts and circumstances; and
c) use the reasonable and informed third party test described in paragraph 2113.1 A1.
Exercise of Professional Judgment
2112.1 A1 Professional judgment involves the application of relevant training, professional knowledge, skill
and experience commensurate with the facts and circumstances, including the nature and scope
of the particular professional activities, and the interests and relationships involved. In relation to
undertaking professional activities, the exercise of professional judgment is required when the
insolvency practitioner applies the conceptual framework in order to make informed decisions
about the courses of actions available, and to determine whether such decisions are appropriate
in the circumstances.
2112.1 A2 An understanding of known facts and circumstances is a prerequisite to the proper application
of the conceptual framework. Determining the actions necessary to obtain this understanding
and coming to a conclusion about whether the fundamental principles have been complied with
also require the exercise of professional judgment.
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2112.1 A3 In exercising professional judgment to obtain this understanding, the insolvency practitioner
might consider, among other matters, whether:
• There is reason to be concerned that potentially relevant information might be missing from
the facts and circumstances known to the insolvency practitioner.
• There is an inconsistency between the known facts and circumstances and the insolvency
practitioner’s expectations.
• The insolvency practitioner’s expertise and experience are sufficient to reach a conclusion.
• There is a need to consult with others with relevant expertise or experience.
• The information provides a reasonable basis on which to reach a conclusion.
• The insolvency practitioner’s own preconception or bias might be affecting the insolvency
practitioner’s exercise of professional judgment.
• There might be other reasonable conclusions that could be reached from the available
information.
Reasonable and Informed Third Party
2113.1 A1 The reasonable and informed third party test is a consideration by the insolvency practitioner
about whether the same conclusions would likely be reached by another party. Such
consideration is made from the perspective of a reasonable and informed third party, who
weighs all the relevant facts and circumstances that the insolvency practitioner knows, or could
reasonably be expected to know, at the time the conclusions are made. The reasonable and
informed third party does not need to be an insolvency practitioner, but would possess the
relevant knowledge and experience to understand and evaluate the appropriateness of the
insolvency practitioner’s conclusions in an impartial manner.
Identifying Threats
R2114.1 The insolvency practitioner shall identify threats to compliance with the fundamental
principles.
2114.1 A1 An understanding of the facts and circumstances, including any professional activities, interests
and relationships that might compromise compliance with the fundamental principles, is a
prerequisite to the insolvency practitioner’s identification of threats to such compliance. The
existence of certain conditions, policies and procedures established by the profession,
legislation, regulation, the firm, or the employing organisation that can enhance the insolvency
practitioner acting ethically might also help identify threats to compliance with the fundamental
principles.
2114.1 A2 Below there are examples of such conditions, policies and procedures which are also factors
that are relevant in evaluating the level of threats (see also Professional and personal
relationships):
a) leadership of the firm that stresses the importance of compliance with the fundamental
principles;
b) policies and procedures to implement and monitor quality control of engagements;
c) documented policies regarding the need to identify threats to compliance with the
fundamental principles, evaluate the significance of those threats, and apply safeguards to
eliminate or reduce the threats to an acceptable level;
d) documented internal policies and procedures requiring compliance with the fundamental
principles;
e) policies and procedures to identify the existence of any threats to compliance with the
fundamental principles before deciding whether to accept an insolvency appointment;
f) policies and procedures to identify interests or relationships between the firm or individuals
within the firm and third parties;
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g) policies and procedures to prohibit individuals who are not members of the insolvency team
from inappropriately influencing the outcome of an insolvency appointment;
h) timely communication of a firm’s policies and procedures, including any changes to them, to
all individuals within the firm, and appropriate training and education on such policies and
procedures;
i) designating a member of senior management to be responsible for overseeing the
adequate functioning of the firm’s quality control system;
j) a disciplinary mechanism to promote compliance with policies and procedures;
k) published policies and procedures to encourage and empower individuals within the firm to
communicate to senior levels within the firm any issue relating to compliance with the
fundamental principles that concerns them.
2114.1 A3 Threats to compliance with the fundamental principles might be created by a broad range of
facts and circumstances. It is not possible to define every situation that creates threats. In
addition, the nature of engagements and work assignments might differ and, consequently,
different types of threats might be created.
2114.1 A4 Threats to compliance with the fundamental principles fall into one or more of the following
categories:
a) Self-interest threat – the threat that a financial or other interests of the firm, an individual
within the firm or a close or immediate family member of an individual within the firm will
inappropriately influence the insolvency practitioner’s judgment or behaviour;
b) Self-review threat – the threat that the insolvency practitioner will not appropriately evaluate
the results of a previous judgment made or service performed by an individual within the
firm, on which the insolvency practitioner will rely when forming a judgment as part of
providing a current service;
c) Advocacy threat – the threat that an individual within the firm will promote a position or
opinion to the point that the insolvency practitioner’s objectivity is compromised;
d) Familiarity threat –the threat that due to a long or close relationship, an individual within the
firm will be too sympathetic or antagonistic to the interests of others or too accepting of their
work; and
e) Intimidation threat – the threat that an insolvency practitioner will be deterred from acting
objectively because of actual or perceived pressures, including attempts to exercise undue
influence over the insolvency practitioner.
2114.1 A5 The following are examples of facts and circumstances within each category of threats that
might create threats for an insolvency practitioner:
a) Examples of circumstances that might create self-interest threats for an insolvency
practitioner include:
i. an individual within the firm having an interest in a creditor or potential creditor with a
claim which requires subjective adjudication, or having an interest in a party to a
transaction;
ii. an individual within the firm having a close business relationship with a creditor,
potential creditor or a party to a transaction;
iii. the insolvency practitioner discovering a significant error when evaluating the results
of a previous service performed by an individual within the firm;
iv. concern about the possibility of damaging a business relationship;
v. concern about future employment.
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b) Examples of circumstances that might create self-review threats for an insolvency
practitioner include:
i. accepting an insolvency appointment in respect of an entity where an individual
within the firm has recently been employed by or seconded to that entity;
ii. an insolvency practitioner or the firm having previously carried out professional work
of any description, including sequential insolvency appointments, for an entity.
c) Examples of circumstances that might create advocacy threats for an insolvency practitioner
include:
i. acting in an advisory capacity for a creditor of the insolvent entity;
ii. acting in an advisory capacity to an entity prior to its insolvency;
iii. acting as an advocate for a client of the firm in litigation or a dispute with the insolvent
entity.
d) Examples of circumstances that might create familiarity threats for an insolvency
practitioner include:
i. an individual within the firm or a close or immediate family member having a close
relationship with a director, officer, employee or any individual having a financial
interest in the insolvent entity;
ii. an individual within the firm or a close or immediate family member having a close
relationship with a potential purchaser of the insolvent entity’s assets and/or
business or any individual having a financial interest in the potential purchaser.
In this regard a close relationship includes both a close professional relationship and a close
personal relationship.
e) Examples of circumstances that might create intimidation threats for an insolvency
practitioner include:
i). an individual within the firm being threatened with dismissal or replacement;
ii). an individual within the firm being threatened with litigation, complaint or adverse
publicity;
iii). an individual within the firm being threatened with violence or other reprisal.
2114.1 A6 A circumstance might create more than one threat, and a threat might affect compliance with
more than one fundamental principle.
Evaluating Threats
R2115.1 When the insolvency practitioner identifies a threat to compliance with the fundamental
principles, the insolvency practitioner shall evaluate whether such a threat is at an
acceptable level.
Acceptable Level
2115.1 A1 An acceptable level is a level at which an insolvency practitioner using the reasonable and
informed third party test would likely conclude that the insolvency practitioner complies with the
fundamental principles.
Factors Relevant in Evaluating the Level of Threats
2115.2 A1 The consideration of qualitative as well as quantitative factors is relevant in the insolvency
practitioner’s evaluation of threats, as is the combined effect of multiple threats, if applicable.
2115.2 A2 The existence of conditions, policies and procedures described in paragraph 2114.1 A1 might
also be factors that are relevant in evaluating the level of threats to compliance with
fundamental principles. Examples of such conditions, policies and procedures include:
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a) corporate governance requirements.
b) educational, training and experience requirements for the profession.
c) professional standards.
d) effective complaint systems which enable the insolvency practitioner and the general public
to draw attention to unethical behaviour.
e) an explicitly stated duty to report breaches of ethics requirements.
f) professional or regulatory monitoring and disciplinary procedures.
g) external review by a legally empowered third party of the reports, returns, communications
or information produced by the insolvency practitioner.
Consideration of New Information or Changes in Facts and Circumstances
R2115.3 If the insolvency practitioner becomes aware of new information or changes in facts and
circumstances that might impact whether a threat has been eliminated or reduced to an
acceptable level, the insolvency practitioner shall re-evaluate and address that threat
accordingly.
2115.3 A1 Remaining alert throughout an insolvency appointment assists the insolvency practitioner in
determining whether new information has emerged or changes in facts and circumstances have
occurred that:
a) impact the level of a threat; or
b) affect the insolvency practitioner’s conclusions about whether safeguards applied continue
to be appropriate to address identified threats.
2115.3 A2 If new information results in the identification of a new threat, the insolvency practitioner is
required to evaluate and, as appropriate, address this threat.
Addressing Threats
R2116.1 If the insolvency practitioner determines that the identified threats to compliance with the
fundamental principles are not at an acceptable level, the insolvency practitioner shall
address the threats by eliminating them or reducing them to an acceptable level. The
insolvency practitioner shall do so by:
a) eliminating the circumstances, including interests or relationships, that are creating
the threats;
b) applying safeguards, where available and capable of being applied, to reduce the
threats to an acceptable level; or
c) declining or ending the insolvency appointment.
Actions to Eliminate Threats
2116.1 A1 Depending on the facts and circumstances, a threat might be addressed by eliminating the
circumstance creating the threat. However, there are some situations in which threats can only
be addressed by declining or ending the insolvency appointment or resigning altogether from
the firm or the employing organisation. This is because the circumstances that created the
threats cannot be eliminated and safeguards are not capable of being applied to reduce the
threat to an acceptable level.
Safeguards
2116.1 A2 Safeguards are actions, individually or in combination, that the insolvency practitioner takes that
effectively reduce threats to compliance with the fundamental principles to an acceptable level.
2116.1.A3 Safeguards vary depending on the facts and circumstances. Examples of actions that in certain
circumstances might be safeguards to address threats include:
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• Assigning additional time and qualified personnel to required tasks when an insolvency
appointment has been accepted might address a self-interest threat.
• Having an appropriate reviewer who was not a member of the team review the work
performed or advise as necessary might address a self-review threat.
• Involving another insolvency practitioner to perform or re-perform part of the engagement
might address self-interest, self-review, advocacy, familiarity or intimidation threats.
• Disclosing any referral fees or commission arrangements received for recommending
services or products might address a self-interest threat.
Safeguards specific to an insolvency appointment are considered later in the Code.
Consideration of Significant Judgments Made and Overall Conclusions Reached
R2116.2 The insolvency practitioner shall form an overall conclusion about whether the actions
that the insolvency practitioner takes, or intends to take, to address the threats created
will eliminate those threats or reduce them to an acceptable level. In forming the overall
conclusion, the insolvency practitioner shall:
a) review any significant judgments made or conclusions reached; and
b) use the reasonable and informed third party test.
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Breaches of the Code
R2120.1 An insolvency practitioner who identifies a breach of any other provision of the Code
shall evaluate the significance of the breach and its impact on the insolvency
practitioner’s ability to comply with the fundamental principles. The insolvency
practitioner shall also:
a) take whatever actions might be available, as soon as possible, to address the
consequences of the breach satisfactorily; and
b) determine whether to report the breach to the relevant parties.
2120.1 A1 Relevant parties to whom such a breach might be reported include those who might have been
affected by it, or an authorising body.
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Record keeping
2130.1 A1 It will always be for the insolvency practitioner to justify their actions. An insolvency practitioner
will be expected to be able to demonstrate the steps that they took and the conclusions that they
reached in identifying, evaluating and responding to any threats, both leading up to and during an
insolvency appointment, by reference to written contemporaneous records.
R2130.2 The insolvency practitioner shall document:
a) the facts.
b) any communications with, and parties with whom the matters were discussed.
c) the courses of action considered, the judgments made and the decisions that were
taken.
d) the safeguards applied to address the threats when applicable.
e) how the matter was addressed.
f) where relevant, why it was appropriate to accept or continue the insolvency
appointment.
2130.2 A1 The records an insolvency practitioner maintains, in relation to the steps that they took and the
conclusions that they reached, are expected to be sufficient to enable a reasonable and
informed third party to reach a view on the appropriateness of their actions.
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Ethical conflict resolution
2140.1 An insolvency practitioner might be required to resolve a conflict in complying with the
fundamental principles.
2140.1 A1 When initiating either a formal or informal conflict resolution process, the following factors, either
individually or together with other factors, might be relevant to the resolution process:
a) relevant facts
b) ethical issues involved
c) fundamental principles related to the matter in question
d) established internal procedures
e) alternative courses of action.
2140.1 A2 Having considered the relevant factors, it is necessary for an insolvency practitioner to
determine the appropriate course of action, weighing the consequences of each possible course
of action. If the matter remains unresolved, the insolvency practitioner might wish to consult with
other appropriate persons within the firm for help in obtaining resolution.
2140.1 A3 Where a matter involves a conflict with, or within, an entity, an insolvency practitioner will need
to decide whether to consult with those charged with governance of the entity, such as the
board of directors or senior management team.
R2140.2 The insolvency practitioner shall document the substance of the issue, the details of any
discussions held, and the decisions made concerning that issue.
2140.2 A1 Reference should be made to Record Keeping (2130).
2140.2 A2 The insolvency practitioner is expected to be seen to act in such a way that threats to the
fundamental principles are adequately addressed. Therefore, it is important that the insolvency
practitioner considers disclosure, for example, to the court or to the creditors and other
interested parties of the existence of any threat, together with the safeguards identified and
applied.
2140.2 A3 If a significant conflict cannot be resolved, an insolvency practitioner might consider obtaining
advice from their authorising body or from legal advisors. The insolvency practitioner generally
can obtain guidance on ethical issues without breaching the fundamental principle of
confidentiality if the matter is discussed with their authorising body on an anonymous basis or
with a legal advisor under the protection of legal privilege.
R2140.3 If, after exhausting all relevant possibilities, the ethical conflict remains unresolved, an
insolvency practitioner shall, where possible, refuse to remain associated with the matter
creating the conflict. The insolvency practitioner shall determine whether, in the
circumstances, it is appropriate to withdraw from the insolvency appointment, or to
resign altogether from the firm or the employing organisation.
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SPECIFIC APPLICATION OF THE CODE
Introduction
2200.1 This part of the Code describes how the framework applies in certain situations to insolvency
practitioners. This part does not describe all of the circumstances and relationships that could
be encountered by an insolvency practitioner that create or could create threats to compliance
with the fundamental principles. Therefore, the insolvency practitioner is encouraged to be alert
for such circumstances and relationships.
Requirements and application material
R2200.2 An insolvency practitioner shall not knowingly engage in any activity that impairs or
might impair integrity, objectivity or the good reputation of the profession and as a result
would be incompatible with the fundamental principles.
R2200.3 An insolvency practitioner shall exercise judgment to determine how best to deal with
threats that are not at an acceptable level, whether by applying safeguards to eliminate
the threat or reduce it to an acceptable level or, where possible, by refusing to remain
associated with the matter creating the conflict.
2200.3 A1 In exercising this judgment, an insolvency practitioner is expected to consider whether a
reasonable and informed third party, weighing all the specific facts and circumstances available
to the insolvency practitioner at that time, would be likely to conclude that the threats would be
eliminated or reduced to an acceptable level by the application of safeguards, such that
compliance with the fundamental principles is not compromised.
2200.3 A2 In the work environment, safeguards will vary depending on the facts and circumstances. Work
environment safeguards comprise safeguards existing across the firm and safeguards specific
to an insolvency appointment.
2200.3 A3 Examples of actions that might be safeguards specific to an insolvency appointment include:
a) consulting an independent third party, such as an authorising body or another insolvency
practitioner;
b) obtaining the views of a committee of creditors;
c) disclosing ethical issues to creditors and other interested parties;
d) involving another insolvency practitioner to perform or re-perform part of the engagement;
e) obtaining legal advice from a solicitor, barrister or advocate with appropriate experience and
expertise.
General conduct
R2200.4 Where circumstances are dealt with by statute or secondary legislation, an insolvency
practitioner shall comply with such provisions.
2200.5 The practice of insolvency is principally governed by statute and secondary legislation and in
many cases is subject ultimately to the control of the court.
R2200.6 An insolvency practitioner shall also comply with any relevant judicial authority relating
to their conduct and any directions given by the court.
R2200.7 An insolvency practitioner shall act in a manner appropriate to their position (as an
officer of the court where applicable) and in accordance with any quasi-judicial, fiduciary
or other duties that the insolvency practitioner might be under.
R2200.8 An insolvency practitioner shall comply with standards or regulations issued by their
authorising body.
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R2200.9 An insolvency practitioner shall also have regard to guidance relevant to the conduct of
an insolvency appointment or work that might lead to an insolvency appointment which
is issued by their authorising body, the Insolvency Service and other appropriate
organisations.
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INSOLVENCY APPOINTMENTS
Introduction
2210.1 Insolvency practitioners are required to comply with the fundamental principles and apply the
conceptual framework to identify, evaluate and address threats.
2210.2 Acceptance of an insolvency appointment might create a threat to compliance with one or more
of the fundamental principles. This section sets out specific requirements and application
material relevant to applying the conceptual framework in such circumstances.
Requirements and application material
R2210.3 Before agreeing to accept any insolvency appointment (including a joint appointment),
an insolvency practitioner shall determine whether acceptance would create any threats
to compliance with the fundamental principles.
2210.3 A1 Of particular importance are threats to the fundamental principle of objectivity created by
conflicts of interest. These are considered in more detail in the section on conflicts of interest
(see paragraphs 2310 to 2311.2 A4).
2210.3 A2 When seeking to identify threats to the fundamental principles, an insolvency practitioner will
need to identify and evaluate any professional or personal relationships that threaten
compliance with the fundamental principles (see Acting with sufficient expertise, 2300 below).
The insolvency practitioner will then need to determine the appropriate response to any threats
arising from any such relationships, including the identifying and applying appropriate
safeguards.
R2210.4 If the insolvency practitioner determines that the identified threats to compliance with the
fundamental principles are not at an acceptable level, the insolvency practitioner shall
address the threats by eliminating them or reducing them to an acceptable level. The
insolvency practitioner shall do so by:
a) Eliminating the circumstances, including interests or relationships, that are creating
the threats; or
b) Applying safeguards, where available and capable of being applied, to reduce the
threats to an acceptable level.
R2210.5 An insolvency practitioner shall not accept an insolvency appointment where a threat to
the fundamental principles has been identified unless the threat is eliminated or reduced
to an acceptable level.
2210.5 A1 Factors that are relevant in evaluating the level of a threat include measures that prevent
unauthorised disclosure of confidential information These measures include:
• The existence of separate practice areas for specialty functions within the firm, which might
act as a barrier to the passing of confidential client information between practice areas.
• Policies and procedures to limit access to client files.
• Confidentiality agreements signed by personnel and partners of the firm.
• Separation of confidential information physically and electronically.
• Specific and dedicated training and communication.
2210.5 A2 Examples of actions that might be safeguards include:
a) involving another insolvency practitioner, either from within or outside the firm as
appropriate to the circumstances, to review the work done, perform or re-perform part of the
work or otherwise advise as necessary. This could include another insolvency practitioner
taking a joint appointment;
b) changing members of the insolvency team or the use of separate staff;
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c) terminating the financial or business relationship that gives rise to the threat;
d) seeking directions from the court.
2210.5 A3 It is important that, prior to the insolvency appointment, the insolvency practitioner considers
disclosure, to the court or to the creditors on whose behalf the insolvency practitioner would be
appointed to act, of the existence of any threat, together with the safeguards identified and
applied, and that no objection is made to the insolvency practitioner being appointed.
2210.5 A4 Where an insolvency practitioner is specifically precluded by this Code from accepting an
insolvency appointment as an individual, a joint appointment is not an appropriate safeguard
and would not make accepting the insolvency appointment appropriate.
2210.5 A5 An insolvency practitioner will need to exercise professional judgment to determine the
appropriate action when threats have been identified. In exercising their judgment, an
insolvency practitioner is expected to take into account whether a reasonable and informed third
party, weighing all the specific facts and circumstances available to the insolvency practitioner
at the time, would be likely to conclude that the threats would be eliminated or reduced to an
acceptable level, such that compliance with the fundamental principles is not compromised.
R2210.6 An insolvency practitioner might encounter situations in which the threats cannot be
eliminated and safeguards are not capable of being applied to reduce the threats to an
acceptable level. Where this is the case, the insolvency practitioner shall not accept the
insolvency appointment.
R2210.7 Following the acceptance of an insolvency appointment, the insolvency practitioner shall
keep under review any identified threats, and the insolvency practitioner shall be mindful
that other threats to the fundamental principles could arise.
2210.7 A1 Remaining alert throughout the insolvency appointment will assist the insolvency practitioner in
determining whether new information has emerged or changes in facts and circumstances have
occurred that:
a) impact the level of a threat; or
b) affect the insolvency practitioner’s conclusions about whether safeguards applied continue
to be appropriate to address identified threats.
Mergers
2210.8 A1 If firms merge, after the merger, they are to be treated as one firm for the purposes of assessing
threats to the fundamental principles.
R2210.9 At the time of the merger, the insolvency practitioner shall review existing insolvency
appointments and identify any threats to the fundamental principles.
2210.9 A1 Principals and employees of the merged firm will become subject to common ethical constraints
in relation to accepting new insolvency appointments to clients of either of the former firms.
However existing insolvency appointments which are rendered in apparent breach of the Code
by the merger need not be judged to be so automatically, provided that a considered review of
the situation by the firm discloses no obvious and immediate ethical conflict.
R2210.10 Where an individual within the firm has, in any former capacity, undertaken work upon the
affairs of an entity that is incompatible with an insolvency appointment of the new firm,
the individual shall not work or be employed on that assignment.
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ACTING WITH SUFFICIENT EXPERTISE
Introduction
2300.1 Insolvency practitioners are required to comply with the fundamental principles and apply the
conceptual framework to identify, evaluate and address threats.
2300.2 The fundamental principle of professional competence and due care requires that an insolvency
practitioner only accepts an insolvency appointment when the insolvency practitioner has or can
acquire sufficient expertise. For example, a self-interest threat to the fundamental principle of
professional competence and due care is created if the insolvency practitioner or the insolvency
team does not possess or cannot acquire the competencies necessary to carry out the
insolvency appointment. Acquiring in this context includes obtaining the expertise from
elsewhere by employing experts or additional resources. This section sets out specific
requirements and application material relevant to applying the conceptual framework in such
circumstances.
Requirements and Application Material
General
R2300.3 An insolvency practitioner shall not intentionally mislead an employing organisation as
to the level of expertise or experience possessed.
2300.3 A1 The principle of professional competence and due care requires that an insolvency practitioner
only undertake significant tasks for which the insolvency practitioner has, or can obtain,
sufficient training or experience.
2300.3 A2 A self-interest threat to compliance with the principle of professional competence and due care
might be created if an insolvency practitioner has:
• insufficient time for performing or completing the relevant duties;
• incomplete, restricted or otherwise inadequate information for performing the duties;
• insufficient experience, training and/or education;
• inadequate resources for the performance of the duties.
2300.3 A3 Factors that are relevant in evaluating the level of such a threat include:
• the extent to which the insolvency practitioner is working with others;
• the relative seniority of the insolvency practitioner in the firm;
• the level of supervision and review applied to the work.
2300.3 A4 Factors to be considered in evaluating expertise include:
a) an appropriate knowledge and understanding of the entity, its owners, managers and those
responsible for its governance and business activities;
b) an appropriate understanding of the nature of the entity’s business, the complexity of its
operations, the specific requirements of the engagement and the purpose, nature and scope
of the work to be performed;
c) knowledge of relevant industries and subject matters;
d) possessing or obtaining experience of relevant regulatory and reporting requirements;
e) availability of sufficient staff with the necessary competencies;
f) access to experts where necessary;
g) complying with quality control policies and procedures designed to provide reasonable
assurance that specific engagements are accepted only when they can be performed
competently.
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2300.3 A5 Maintaining and acquiring professional competence requires a continuing awareness and
understanding of relevant technical and professional developments.
2300.3 A6 Examples of actions that might be safeguards to address such threats include:
• obtaining assistance or training from someone with the necessary expertise.
• ensuring that there is adequate time available for performing the relevant duties.
R2300.4 If a threat to compliance with the principle of professional competence and due care
cannot be addressed, an insolvency practitioner shall determine whether to decline to
perform the duties in question or accept or continue the insolvency appointment. If the
insolvency practitioner determines that declining to accept the insolvency appointment
is appropriate, the insolvency practitioner shall communicate the reasons.
R2300.5 The insolvency practitioner shall keep under review the expertise required throughout
the insolvency appointment
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CONFLICTS OF INTEREST AND PROFESSIONAL AND PERSONAL RELATIONSHIPS
Introduction
2310.1 Insolvency practitioners are required to comply with the fundamental principles and apply the
conceptual framework to identify, evaluate and address threats.
2310.2 A conflict of interest creates threats to compliance with the principle of objectivity and might
create threats to compliance with the other fundamental principles.
2310.3 Where a conflict of interest arises, the preservation of confidentiality will be of paramount
importance.
2310.4 This section sets out specific requirements and application material relevant to applying the
conceptual framework to conflicts of interest.
Requirements and Application Material
General
R2311.1 An insolvency practitioner shall not allow a conflict of interest to compromise
professional or business judgment.
R2311.2 An insolvency practitioner might encounter circumstances where a threat to the principle
of objectivity or other fundamental principles cannot be eliminated and safeguards cannot
be applied to reduce the threat to an acceptable level. Where this is the case the
insolvency practitioner shall not accept the insolvency appointment.
2311.2 A1 Examples of circumstances that might create a conflict of interest include where a significant
relationship has existed with the entity or someone connected with the entity, or where an
insolvency practitioner:
• has to deal with conflicting or competing interests between entitles over whom they, or
another insolvency practitioner in their firm, is appointed.
• or another insolvency practitioner in their firm has previously acted as an insolvency office
holder to a company with a common director, or common directors. Where the insolvency
practitioner has been appointed officeholder to a number of insolvent companies with the
same director or directors, there will be an increased risk of a conflict of interest arising.
• has, or others in their firm have, previously carried out one or more assignments for an
entity and / or its wider group and they are appointed as an insolvency office holder to the
entity or its connected entities.
• has, or others in their firm have, previously carried out one or more assignments for an
entity’s charge holders or stakeholders and the insolvency practitioner is appointed as an
insolvency office holder to the entity or its connected entities.
• is appointed administrator by a floating charge holder, under a recent charge, and the
assets are sold to a purchaser and the purchaser is connected to the floating charge holder.
• is appointed to act as supervisor of a debtor’s IVA or trustee in a debtor’s bankruptcy or
sequestration, and has, or another insolvency practitioner in the same firm, has been
appointed as an insolvency officeholder to a company of which the debtor is a director, or
was a director in the past three years.
• is appointed to deal with an insolvent individual’s affairs, and the insolvency practitioner, or
another individual in their firm, was involved in bringing about the individual’s insolvency.
There could be an increased risk of a conflict of interest where the insolvency practitioner
has a claim for outstanding costs.
2311.2 A2 There will be an increased risk of a conflict arising where an insolvency practitioner or their firm
has carried out a number of previous assignments for an entity, its group or its charge holders
or stakeholders. There will also be an increased risk if the previous assignments took place over
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an extended period of time. The level of risk will also depend on the services that were provided
and the nature of the work carried out.
2311.2 A3 There will be an increased risk where an insolvency practitioner has, or others in their firm have,
carried out one or more pre-appointment engagements for the entity, and the insolvency
practitioner is appointed as an insolvency officeholder, and they, or another insolvency
practitioner in their firm is subsequently appointed officeholder in a further insolvency process.
2311.2 A4 The fact that an insolvency practitioner, or their firm, might not have been formally engaged to
carry out an assignment, or might not have been paid for their work, does not negate the
possibility of a conflict of interest arising.
Professional and personal relationships
Introduction
2312.1 The environment in which insolvency practitioners work and the relationships formed in their
professional and personal lives can lead to threats to the fundamental principle of objectivity.
Requirements and Application Material
R2312.2 The principle of objectivity might be threatened if any individual within the firm, the close
or immediate family of an individual within the firm or the firm itself, has or has had a
professional or personal relationship which relates to the insolvency appointment being
considered.
2312.2 A1 Relationships could include (but are not restricted to) relationships with:-
a) the entity;
b) senior management or any director or shadow director or former director or shadow director
of the entity;
c) shareholders or Persons of Significant Control of the entity;
d) any principal or employee of the entity;
e) business partners of the entity;
f) companies or entities controlled by the entity;
g) companies which are under common control;
h) potential purchasers;
i) creditors;
j) funders, including shareholders, private equity houses and debenture holders of the entity;
k) debtors of the entity;
l) close or immediate family of the entity (if an individual) or its officers (if a corporate body);
m) others with commercial relationships with the firm or personal relationships with an individual
within the firm.
2312.2 A2 The examples above are not exhaustive, and the substance of any relationship should be
considered.
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R2312.3 An insolvency practitioner shall ensure that the firm has policies and procedures to
identify relationships between individuals within the firm and third parties in a way that is
proportionate and reasonable in relation to the insolvency appointment being
considered.
R2312.4 Before accepting an insolvency appointment, an insolvency practitioner shall take
reasonable steps to identify circumstances (including any relationships) that might
create a conflict of interest, and therefore a threat to compliance with one or more of the
fundamental principles. Such steps shall include identifying:
a) the nature of the relevant interests and relationships between all stakeholders; and
b) the nature, extent and timing of any prior work for the entity or connected entities
and its implication for all stakeholders .
2312.4 A1 An effective conflict identification process assists an insolvency practitioner when taking
reasonable steps to identify interests and relationships that might create an actual or potential
conflict of interest, both before determining whether to accept an insolvency appointment and
throughout the appointment. Such a process includes considering matters identified by external
parties, for example directors of insolvent entities or insolvent individuals. The earlier an actual
or potential conflict of interest is identified, the greater the likelihood of the accountant being
able to address threats created by the conflict of interest.
2312.4 A2 An effective process to identify actual or potential conflicts of interest will take into account
factors such as:
• the nature of any previous work carried out for the entity or connected entities
• the nature of the insolvency appointment
• the size of the firm
• the size and nature of the client base
• the structure of the firm, for example, the number and geographic location of offices.
R2312.5 Where a professional or personal relationship of the type described in paragraph 2312.2
A1 has been identified the insolvency practitioner shall evaluate the impact of the
relationship in the context of the insolvency appointment being sought or considered.
2312.5 A1 Issues to consider in evaluating whether a relationship creates a threat to the fundamental
principles include the following:
a) The nature of the previous duties undertaken by a firm during an earlier relationship with the
entity.
b) The impact of the work conducted by the firm on the financial state and/or the financial
stability of the entity in respect of which the insolvency appointment is being considered.
c) Whether the fees for the work or the costs incurred is or was significant to the insolvency
practitioner, the insolvency practitioner’s department or the firm itself.
d) Whether the fee received for the work or the cost of the work was substantial.
e) How recently any professional work was carried out. It is likely that greater threats will arise
(or could be seen to arise) where work has been carried out within the previous three years.
However, there might still be instances where, in respect of non-audit work, any threat is at
an acceptable level. Conversely, there might be situations whereby the nature of the work
carried out was such that a considerably longer period will need to have elapsed before any
threat can be reduced to an acceptable level.
f) Whether the insolvency appointment being considered involves consideration of any work
previously undertaken by the firm for that entity.
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g) The nature of any personal relationship and the proximity of the insolvency practitioner to
the individual with whom the relationship exists and, where appropriate, the proximity of that
individual to the entity in relation to which the insolvency appointment relates.
h) Whether any reporting obligations will arise in respect of the relevant individual with whom
the relationship exists (e.g. an obligation to report on the conduct of directors and shadow
directors of a company to which the insolvency appointment relates).
i) The nature of any previous duties undertaken by an individual within the firm during any
earlier relationship with the entity.
j) The extent of the insolvency team’s familiarity with the individuals connected with the entity.
2312.5 A2 When evaluating the nature of any previous work done, an insolvency practitioner is expected to
take into account any work done, even if it was not subject to a formal engagement and / or did
not generate a fee for the firm.
R2312.6 Having identified and evaluated a relationship that might create a threat to the
fundamental principles, the insolvency practitioner shall consider their response
including possible actions to reduce the threat to an acceptable level.
2312.6 A1 Examples of actions which might be safeguards to reduce the level of threat created by a
professional or personal relationship to an acceptable level are considered in paragraph 2210.5
A2. Examples of other safeguards include:
a) terminating (where possible) the financial or business relationship giving rise to the threat.
b) disclosure of the relationship and any financial benefit received by the firm (whether directly
or indirectly) to the entity or to those on whose behalf the insolvency practitioner would be
appointed to act.
2312.6 A2 While an insolvency practitioner might not be able to withdraw from the team, the threat created
by another individual’s professional or personal relationship could be reduced to an acceptable
level by that individual withdrawing from the insolvency team.
R 2312.7 An insolvency practitioner could encounter situations in which no action can be taken
to eliminate a threat arising from a professional or personal relationship, or to reduce it
to an acceptable level. In such situations, the relationship in question will constitute a
significant professional relationship or a significant personal relationship. Where this is
case the insolvency practitioner shall not accept the insolvency appointment.
R2312.8 An insolvency practitioner shall always consider the perception of others when deciding
whether to accept an insolvency appointment.
2312.8 A1 While an insolvency practitioner might regard a relationship as not being significant to the
insolvency appointment, the perception of others could differ and this might in some
circumstances be sufficient to make the relationship significant. In considering perception, this
needs to be considered on the basis of a reasonable and informed third party, weighing up all
the specific facts and circumstances available to the insolvency practitioner at that time.
R2312.9 The insolvency practitioner shall document:
a) the facts.
b) any communications with, and parties with whom the matters were discussed.
c) the courses of action considered, the judgments made and the decisions that were
taken.
d) the safeguards applied to address the threats when applicable.
e) how the matter was addressed.
f) where relevant, why it was appropriate to accept or continue the insolvency
appointment.
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R2312.10 The records an insolvency practitioner maintains, in relation to the steps that they took
and the conclusions that they reached, shall be sufficient to enable a reasonable and
informed third party to reach a view on the appropriateness of their actions.
Changes in Circumstances
R2313.1 An insolvency practitioner shall remain alert to changes over time in the nature of
services, interests and relationships that might create a conflict of interest while acting
as an insolvency office holder.
2313.1 A1 The nature of interests and relationships might change during the appointment. This is
particularly true when an insolvency practitioner is appointed in a situation that might become
adversarial, even though the stakeholders might not initially be involved in a dispute. It could
also be the case where a debt is sold or transferred during the appointment, where an
insolvency practitioner is appointed as a replacement officeholder, where a liquidator in a
members’ voluntary liquidation is converting the winding up to a creditors’ voluntary liquidation
or where a creditor goes into an insolvency process.
Network Firms
R2314.1 If the firm is a member of a network, an insolvency practitioner shall consider conflicts of
interest that the insolvency practitioner has reason to believe might exist or arise due to
interests and relationships of a network firm.
2314.1 A1 Factors to consider when identifying interests and relationships involving a network firm include:
• the nature of the professional services provided
• the clients served by the network
• the geographic locations of all relevant parties
Threats Created by Conflicts of Interest
2315.1 In general, the more direct the connection between the professional service and the matter on
which the parties’ interests conflict, the more likely the level of the threat is not at an acceptable
level.
2315.2 Factors that are relevant in evaluating the level of a threat created by a conflict of interest
include measures that prevent unauthorized disclosure of confidential information when dealing
with insolvency appointments for two or more insolvent entities whose interests with respect to
that matter are in conflict. These measures include:
• the existence of separate practice areas for specialty functions within the firm, which might
act as a barrier to the passing of confidential client information between practice areas;
• policies and procedures to limit access to case files;
• confidentiality agreements signed by personnel and partners of the firm;
• separation of confidential information physically and electronically;
• specific and dedicated training and communication.
2315.3 Examples of actions that might be safeguards to address threats created by a conflict of interest
include:
• Having separate engagement teams who are provided with clear policies and procedures
on maintaining confidentiality.
• Having an appropriate reviewer, who is not involved in providing the service or otherwise
affected by the conflict, review the work performed to assess whether the key judgments
and conclusions are appropriate.
R2315.4 An insolvency practitioner shall exercise professional judgment to determine whether
the nature and significance of a conflict of interest are such that specific disclosure and
27
explicit consent is necessary when addressing the threat created by the conflict of
interest.
2315.4 A1 Factors to consider when determining whether specific disclosure and explicit consent are
necessary include:
• the circumstances creating the conflict of interest
• the parties that might be affected
• The nature of the issues that might arise
• The potential for the particular matter to develop in an unexpected manner.
2315.4 A2 Disclosure and consent might take different forms, for example:
• disclosure to the court on making an application to court for an administration or any other
order
• obtaining consent from a creditors’ committee
• obtaining consent from a secured lender
• disclosure to creditors
2315.4 A3 It is generally expected that any disclosure will include the circumstances of the particular
conflict and how any threats created were addressed.
2315.4 A4 More information on accepting insolvency appointments is set out in Insolvency appointments
(see paragraph 2210).
Confidentiality
General
R2316.1 An insolvency practitioner shall remain alert to the principle of confidentiality, including
when making disclosures or sharing information within the firm or network and seeking
guidance from third parties.
2316.1 A1 Paragraphs 2104.1 to 2104.4 set out requirements and application material relevant to
situations that might create a threat to compliance with the principle of confidentiality.
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SPECIALIST ADVICE AND SERVICES
Introduction
2320.1 Insolvency practitioners are required to comply with the fundamental principles and apply the
conceptual framework to identify, evaluate and address threats.
2320.2 If an insolvency practitioner obtains specialist advice or services from others, this might create a
self-interest threat to compliance with one or more of the fundamental principles. This section
sets out specific application material relevant to applying the conceptual framework in such
circumstances.
Requirements and Application Material
R2320.3 When an insolvency practitioner intends to rely on the advice or work of another, from
within the firm or by a third party, the insolvency practitioner shall evaluate whether such
advice or work is warranted.
R2320.4 Any advice or work contracted shall reflect best value and service for the work
undertaken.
2320.4 A Factors that are relevant in evaluating best value and service are:
• the cost of the service;
• the expertise and experience of the service provider;
• that the provider holds appropriate regulatory authorisations;
• the professional and ethical standards applicable to the service provider.
R2320.5 The Insolvency practitioner shall review arrangements periodically to ensure that best
value and service continue to be obtained in relation to each insolvency appointment.
R2320.6 The insolvency practitioner shall document the reasons for choosing a particular service
provider.
2320.6 A1 Threats to the fundamental principles (for example familiarity threats and self-interest threats)
can arise if services are provided by a regular source within the firm or by a party with whom the
insolvency practitioner, firm, or an individual within the firm, has a business or personal
relationship.
2320.6 A2 Business or personal relationships might include the following:
• an immediate family member e.g. spouse, parent, child, sibling etc.
• a business partner;
• any company or business in which there are common shareholdings with the firm, or which
have the same beneficial owner(s); or one of the companies or business controls or owns the
other.
2320.6 A3 The examples above are not exhaustive, and the substance of the relationship between the
insolvency practitioner, the firm or an individual within the firm and the provider of the service
should be considered.
2320.6 A4 When taking steps to assess the nature of any such relationship, the insolvency practitioner
should have regard to Conflicts of interest and professional and personal relationships.
2320.6 A5 While the insolvency practitioner might regard a relationship as not being a cause for concern,
the perception of others could differ. In considering perception, it is expected that the insolvency
practitioner considers this on the basis of a reasonable and informed third party, weighing up all
the specific facts and circumstances available to the insolvency practitioner at that time.
2320.6 A6 Examples of actions that might be safeguards to address such threats include:
29
a) applying clear guidelines and policies within the firm on such relationships
b) disclosure of the relevant relationships and the process undertaken to evaluate best value
and service to the general body of creditors or the creditors’ committee if one exists
c) the benefit of negotiated commercial terms such as volume or settlement discounts being
received in full by the insolvent estate.
2320.6 A7 Where the insolvency practitioner does not control decisions about the choice of the provider of
specialist advice or service, to be able to comply with the requirements in this part the
insolvency practitioner will need to obtain sufficient information to establish the nature of the
relationship with the provider. Reference should also be made to The insolvency practitioner as
an employee (see paragraph 2380).
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AGENCIES AND REFERRALS
Introduction
2330.1 Insolvency practitioners are required to comply with the fundamental principles and apply the
conceptual framework to identify, evaluate and address threats.
2330.2 If an insolvency practitioner receives referred work, refers work to others, or establishes an
agency arrangement, this might create a self-interest threat to compliance with one or more of
the fundamental principles. A referral could be a formal request made in the course of a
professional relationship, for advice on the selection of a potential professional adviser. A
referral might also be an informal request, including where there is no existing relationship
between the insolvency practitioner and the enquirer. This section sets out specific application
material relevant to applying the conceptual framework in such circumstances.
2330.3 Attention is also drawn to the legislative provisions regarding the use of personal data.
2330.4 The requirements in respect of referral fees and commissions are detailed in Referral fees and
commission (see paragraph 2340).
Requirements and Application Material
R2330.5 The insolvency practitioner shall consider the fitness for purpose of the third party to
whom a referral is proposed or an agency arrangement is being considered, to address
the needs of the recipient of the service.
2330.5 A1 Insolvency practitioners are expected to consider any factors they are aware of that would
indicate the proposed third party is not fit for purpose in terms of the potential engagement. The
insolvency practitioner needs to take into account what a reasonable person might expect an
insolvency practitioner to know.
2330.5 A2 Examples of actions that might be safeguards to address threats created by any referral and
agency arrangements include:
a) applying clear guidelines and policies within the firm on referrals and agency arrangements
b) disclosure of the process undertaken to evaluate best value and service and any relevant
relationships to the general body of creditors or the creditors’ committee if one exists.
2330.5 A3 In making that consideration of fitness for purpose, the insolvency practitioner is expected to
take account of the professional or regulatory status of the third party.
R2330.6 Insolvency practitioners shall not, because of the self-interest threat, enter into any
financial arrangements with another supplier either personally or through their firm
which would prejudice the objectivity of themselves or their firm.
R2330.7 Before accepting or continuing an agency with another supplier, insolvency practitioners
shall satisfy themselves that their ability to discharge their professional obligations are
not compromised.
2330.7 A1 When referring work or establishing an agency, insolvency practitioners have a responsibility to
ascertain that a referral is conducted in accordance with this Code because insolvency
practitioners cannot do, or be seen to do, through others what they cannot not do themselves.
R2330.8 When insolvency practitioners or their firm are considering the establishment of an
agency, the terms of the agency contract (actual or implied) shall not require exclusive
referral regardless of suitability. This would make important safeguards inoperable.
R2330.9 An insolvency practitioner shall not make a referral to a third party, even with a
disclaimer, if they know of a better alternative.
R2330.10 The insolvency practitioner shall document the reasons for establishing an agency with
another supplier or recommending a particular provider.
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R2330.11 When permitting the introduction of services or products, an insolvency practitioner
shall address the threats to compliance with the fundamental principles.
2330.11 A1 When permitting the introduction of services or products to those who are the subject of an
insolvency appointment, factors that are relevant to such introductions include:
• The level of knowledge and expertise of those who are subject to, or have a financial
interest in, the insolvency appointment or prospective insolvency appointment.
• The ability of those who are subject to, or have a financial interest in, the insolvency
appointment or prospective insolvency appointment, to question the information provided by
or with the consent of the insolvency practitioner.
• Information provided to those who are subject to, or have had financial interest in, the
insolvency appointment or prospective insolvency appointment to enable an informed
decision to be made.
• Whether consent has been obtained from the individual subject to the insolvency
appointment, or prospective insolvency appointment, for their personal information to be
shared with the provider of the service or product.
• The cost of the service.
• The financial impact on those who are subject to, or have a financial interest in, the
insolvency appointment or prospective insolvency appointment.
• The regulatory status of the provider of the service or product.
• Disclosing the nature of the referral or arrangement to those who are subject to, or have a
financial interest in, the insolvency appointment or prospective insolvency appointment.
2330.11 A2 Being transparent about any referral or agency arrangements and setting out in writing to the
individuals concerned the nature of the arrangement might be an appropriate safeguard (see
paragraph 2330.5 A2 above).
2330.11 A3 When communicating information about any referral or agency arrangements the insolvency
practitioner should provide the following information:
• the advantages and disadvantages of the service or product being provided;
• that similar services or products could be available from other providers at a different cost;
• any direct or indirect benefit that the insolvency practitioner or the firm might receive if a
service or product is taken up;
• that seeking independent advice should be considered.
R2330.12 If the insolvency practitioner or the firm has a relationship with the third party, for
example a family connection or an automatic referral arrangement, there are clear self-
interest or familiarity threats and the connection shall be disclosed. The disclosure shall
include any potential benefit, whether direct or indirect, they, or others will receive.
2330.12 A1 In addition to disclosure required by R2330.12, the insolvency practitioner should consider
including the additional information listed in 2330.11 A3.
2330.12 A2 This is particularly important where an insolvency practitioner is considering recommending the
products of another supplier with which there is an agency agreement or referral arrangement
and the insolvency practitioner, firm, or an individual within the firm, has a business or personal
relationship with the provider of the service.
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2330.12 A3 Business or personal relationships might include the following:
• an immediate family member e.g. spouse, parent, child, sibling etc.
• a business partner;
• any company or business in which there are common shareholdings with the firm, or which
have the same beneficial owner(s); or one of the companies or business controls or owns the
other.
2330.12 A4 The examples above are not exhaustive, and the substance of the relationship between the
insolvency practitioner, the firm or an individual within the firm and the provider of the service
should be considered.
2330.12 A5 When taking steps to assess the nature of any such relationship, the insolvency practitioner
should have regard to Conflicts of interest and professional and personal relationships.
2330.12 A6 While the insolvency practitioner might regard a relationship as not being a cause for concern,
the perception of others could differ. It is necessary to consider perception on the basis of a
reasonable and informed third party, weighing up all the specific facts and circumstances
available to the insolvency practitioner at that time.
2330.12 A7 The requirement to disclose includes situations where in substance there is a one-to-one
relationship between the insolvency practitioner and the third party (for example, the insolvency
practitioner is the only insolvency practitioner in the area and the third party is the only solicitor),
as this implies automatic referral.
R2330.13 An insolvency practitioner shall not in any circumstances conduct their firm in such a
manner as to give the impression that the insolvency practitioner is a principal rather
than an agent.
2330.13 A1 This includes considering signs on premises, websites and any other outward signs or literature
used.
2330.13.A2 Where the insolvency practitioner does not control decisions about referrals and agencies within
the firm, to comply with the requirements in this part the insolvency practitioner will need to
obtain sufficient information about any arrangements. Reference should also be made to – The
insolvency practitioner as an employee (see paragraph 2380).
33
REFERRAL FEES AND COMMISSIONS1
Introduction
2340.1 Insolvency practitioners are required to comply with the fundamental principles and apply the
conceptual framework to identify, evaluate and address threats.
2340.2 Paying or receiving referral fees and commissions might create a self-interest threat to
compliance with one or more of the fundamental principles. This section sets out specific
application material relevant to applying the conceptual framework in such circumstances.
Requirements and Application Material
2340.3 A self-interest threat to compliance with the principles of objectivity and professional
competence and due care is created if an insolvency practitioner, the firm or an associate offers
or pays a referral fee or commission.
R2340.4 An insolvency practitioner, the firm or an associate shall not make or offer to make any
payment or commission for the introduction of an insolvency appointment.
2340.4 A1 Remuneration arising from an employer/employee relationship would not normally be included
within the scope of payments referred to in R2340.4 above.
2340.4 A2 A self-interest threat to compliance with the principles of objectivity and professional
competence and due care is created if an insolvency practitioner, the firm or an associate
receives a referral fee or commission.
R2340.5 Where an engagement might lead to an insolvency appointment, insolvency practitioners
shall not accept referral fees or commissions unless they take action to reduce the
threats created by such fees or commissions to an acceptable level 2.
2340.5 A1 Examples of actions that might be safeguards to address such threats include:
a) disclosure in advance of any arrangements to the appointing body, creditors or any other
relevant stakeholders,
b) obtaining the views of the creditors committee.
R2340.6 If after the receipt of any such payments by the insolvency practitioner, the firm or an
associate, the insolvency practitioner accepts an insolvency appointment, the amount
and any source of any fee or commission received shall be disclosed to creditors.
R2340.7 During an insolvency appointment, referral fees or commissions shall not be accepted by
the insolvency practitioner, the firm or an associate unless they are paid into the
insolvent estate. Any such payments shall be disclosed to creditors.
R2340.8 Where the insolvency practitioner or firm obtains preferential contractual terms from
suppliers of goods and services obtained for an insolvency appointment, for example
volume or settlement discounts, the benefit shall be received in full by the insolvent
estate.
1 As per Section 642 Companies Act 2014, referral fees and commission are strictly prohibited in the
Republic of Ireland.
2 Insolvency Practitioners operating in the Republic of Ireland or operating in respect of an Irish Company
should not accept referral fees or commission under any circumstances (see footnote 1 above).
34
2340.8 A1 The term ‘associate’ of an insolvency practitioner or the firm includes the following:
• an immediate family member e.g. spouse, parent, child, sibling etc.
• a business partner;
• any company or business in which there are common shareholdings with the firm, or which
have the same beneficial owner(s); or one of the companies or business controls or owns the
other.
2340.8 A2 The examples of associates are not exhaustive, and the substance of the association between
the insolvency practitioner and/or the firm and the recipient or payor of any referral fee or
commission should be considered.
2340.8 A3 When taking steps to assess the nature of any such association, the insolvency practitioner is
expected to have regard to the section on conflicts of interest (paragraphs 2310.1 to 2311.2 A4)
of this Code – conflicts of interest and professional and personal relationships.
2340.8 A4 While the insolvency practitioner might regard an association as not being a cause for concern,
the perception of others might differ. In considering perception, it is expected that be considered
on the basis of a reasonable and informed third party, weighing up all the specific facts and
circumstances available to the insolvency practitioner at that time.
2340.8 A5 When referring work, insolvency practitioners have a responsibility to ascertain that a referral is
conducted in accordance with this Code because insolvency practitioners cannot do, or be seen
to do, through others what they cannot not do themselves.
2340.8 A6 Where the insolvency practitioner does not control decisions about referral and commission
arrangements, to comply with the requirements in this section the insolvency practitioner will
need to obtain sufficient information to establish the nature and purpose of any payments made
or received. Reference should also be made to– The insolvency practitioner as an employee
(see paragraph 2380).
35
INDUCEMENTS, INCLUDING GIFTS AND HOSPITALITY
Introduction
2350.1 Insolvency practitioners are required to comply with the fundamental principles and apply the
conceptual framework to identify, evaluate and address threats.
2350.2 In relation to an insolvency appointment, offering or accepting inducements might create a self-
interest, familiarity or intimidation threat to compliance with the fundamental principles,
particularly the principles of integrity, objectivity and professional behaviour.
2350.3 This section sets out requirements and application material relevant to applying the conceptual
framework in relation to the offering and accepting of inducements when performing services
that does not constitute non-compliance with laws and regulations. This section also requires an
insolvency practitioner to comply with relevant laws and regulations when offering or accepting
inducements.
Requirements and Application Material
General
2350.4 A1 An inducement is an object, situation, or action that is used as a means to influence another
individual’s behaviour, but not necessarily with the intent to improperly influence that individual’s
behaviour. Inducements can range from minor acts of hospitality, to acts that result in non-
compliance with laws and regulations. An inducement can take many different forms, for
example:
• gifts.
• hospitality.
• entertainment.
• political or charitable donations.
• appeals to friendship and loyalty.
• employment or other commercial opportunities.
• preferential treatment, rights or privileges.
2350.4 A2 An inducement might be offered to the firm, an individual within the firm or a close or immediate
family member, as well as to the insolvency practitioner personally. Inducements offered to
others will still give rise to threats to compliance with the fundamental principles.
Inducements Prohibited by Laws and Regulations
R2350.5 In many jurisdictions, there are laws and regulations, such as those related to bribery
and corruption, that prohibit the offering or accepting of inducements in certain
circumstances. The insolvency practitioner shall obtain an understanding of relevant
laws and regulations and comply with them when the insolvency practitioner encounters
such circumstances.
Inducements Not Prohibited by Laws and Regulations
2350.5 A1 The offering or accepting of inducements that is not prohibited by laws and regulations might
still create threats to compliance with the fundamental principles.
Inducements with Intent to Improperly Influence Behaviour
R2350.6 An insolvency practitioner shall not offer, or encourage others to offer, any inducement
that is made, or which the insolvency practitioner considers a reasonable and informed
third party would be likely to conclude is made, with the intent to improperly influence
the behaviour of the recipient or of another.
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R2350.7 An insolvency practitioner shall not accept, or encourage others to accept, any
inducement that the insolvency practitioner concludes is made, or considers a
reasonable and informed third party would be likely to conclude is made, with the intent
to improperly influence the behaviour of the recipient or of another.
2350.7 A1 An inducement is considered as improperly influencing an individual’s behaviour if it causes the
individual to act in an unethical manner. Such improper influence can be directed either towards
the recipient or towards another individual entity or that has some relationship with the recipient.
The fundamental principles are an appropriate frame of reference for an insolvency practitioner
in considering what constitutes unethical behaviour on the part of the insolvency practitioner
and, if necessary by analogy, others.
2350.7 A2 A breach of the fundamental principle of integrity arises when an insolvency practitioner offers
or accepts, or encourages others to offer or accept, an inducement where the intent is to
improperly influence the behaviour of the recipient or of another individual.
2350.7 A3 The determination of whether there is actual or perceived intent to improperly influence
behaviour requires the exercise of professional judgment. Relevant factors to consider might
include:
• The nature, frequency, value and cumulative effect of the inducement.
• Timing of when the inducement is offered relative to any action or decision that it might
influence.
• Whether the inducement is a customary or cultural practice in the circumstances, for
example, offering a gift on the occasion of a religious holiday or wedding.
• Whether the inducement is ancillary to the insolvency appointment, for example, offering or
accepting lunch in connection with a business meeting.
• Whether the offer of the inducement is limited to an individual recipient or available to a
broader group. The broader group might be internal or external to the firm, such as other
suppliers to the provider of the inducement.
• The roles and positions of the individuals offering or being offered the inducement.
• Whether the insolvency practitioner knows, or has reason to believe, that accepting the
inducement would breach the policies and procedures of the recipient.
• The degree of transparency with which the inducement is offered.
• Whether the inducement was required or requested by the recipient.
• The known previous behaviour or reputation of the offeror.
Consideration of Further Actions
2350.8 A1 If the insolvency practitioner becomes aware of an inducement offered with actual or perceived
intent to improperly influence behaviour, threats to compliance with the fundamental principles
might still be created even if the requirements in the paragraphs R2350.6 and R2350.7 are met.
2350.8 A2 Examples of actions that might be safeguards to address such threats include:
• informing senior management of the firm or those charged with governance of the offeror
regarding the offer.
• amending or terminating the business relationship with the offeror.
Inducements with No Intent to Improperly Influence Behaviour
2350.9 A1 The requirements and application material set out in the conceptual framework apply when an
insolvency practitioner has concluded there is no actual or perceived intent to improperly
influence the behaviour of the recipient or of another.
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2350.9 A2 If such an inducement is trivial and inconsequential, any threats created will be at an acceptable
level.
2350.9 A3 Examples of circumstances where offering or accepting such an inducement might create
threats even if the insolvency practitioner has concluded there is no actual or perceived intent to
improperly influence behaviour include:
• Self-interest threats
o An insolvency practitioner is offered hospitality from the prospective purchaser of an
insolvent business.
• Familiarity threats
o An insolvency practitioner regularly takes someone to an event.
• Intimidation threats
o An insolvency practitioner accepts hospitality, the nature of which could be
perceived to be inappropriate were it to be publicly disclosed.
2350.9 A4 Relevant factors in evaluating the level of such threats created by offering or accepting such an
inducement include the same factors set out in paragraph 2350.7 A3 for determining intent.
2350.9 A5 Examples of actions that might eliminate threats created by offering or accepting such an
inducement include:
• Declining or not offering the inducement.
• Transferring responsibility for the provision of professional services to another individual
who the insolvency practitioner has no reason to believe would be, or would be perceived to
be, improperly influenced when providing the services.
2350.9 A6 Examples of actions that might be safeguards to address such threats created by offering or
accepting such an inducement include:
• Being transparent with senior management of the firm about offering or accepting an
inducement.
• Registering the inducement in a log monitored by senior management of the firm or another
individual responsible for the firm’s ethics compliance or maintained by the recipient.
• Having an appropriate reviewer, who is not otherwise involved in the insolvency
appointment, review any work performed or decisions made by the insolvency practitioner
with respect to the provider of the inducement to the insolvency practitioner.
• Donating the inducement to charity after receipt and appropriately disclosing the donation,
for example, to a member of senior management of the firm or of those who offered the
inducement.
• Reimbursing the cost of the inducement, such as hospitality, received.
• As soon as possible, returning the inducement, such as a gift, after it was initially accepted.
R2350.10 If an insolvency practitioner encounters a situation in which no or no reasonable action
can be taken to reduce a threat arising from offers of gifts or hospitality to an acceptable
level the insolvency practitioner shall conclude that it is not appropriate to accept the
offer.
R2350.11 An insolvency practitioner shall not offer or provide gifts or hospitality where this would
give rise to an unacceptable threat to compliance with the fundamental principles.
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Immediate or Close Family Members
R2350.12 An insolvency practitioner shall remain alert to potential threats to the insolvency
practitioner’s compliance with the fundamental principles created by the offering of an
inducement by or to an immediate or close family member of the insolvency practitioner.
R2350.13 Where the insolvency practitioner becomes aware of an inducement being offered to or
made by an immediate or close family member and concludes there is intent to
improperly influence behaviour, or considers a reasonable and informed third party
would be likely to conclude such intent exists, the insolvency practitioner shall advise
the immediate or close family member not to offer or accept the inducement.
2350.13 A1 The factors set out in paragraph 2350.7 A3 are relevant in determining whether there is actual
or perceived intent to improperly influence behaviour. Another factor that is relevant is the
nature or closeness of the relationship, between:
a) the insolvency practitioner and the immediate or close family member;
b) the immediate or close family member and the other party; and
c) the insolvency practitioner and the other party.
For example, the offer of employment, outside of the normal recruitment process, to the spouse
of the insolvency practitioner by a creditor in an insolvency might indicate such intent.
2350.13 A2 The application material in paragraph 2350.8 A2 is also relevant in addressing threats that might
be created when there is actual or perceived intent to improperly influence behaviour even if the
immediate or close family member has followed the advice given pursuant to paragraph
R2350.13.
Application of the Conceptual Framework
2350.14 A1 Where the insolvency practitioner becomes aware of an inducement offered in the
circumstances addressed in paragraph R2350.12, threats to compliance with the fundamental
principles might be created where:
a) The immediate or close family member offers or accepts the inducement contrary to the
advice of the insolvency practitioner pursuant to paragraph R2350.13; or
b) The insolvency practitioner does not have reason to believe an actual or perceived intent to
improperly influence behaviour exists.
2350.14 A2 The application material in paragraphs 2350.9 A1 to 2350.9 A6 is relevant for the purposes of
identifying, evaluating and addressing such threats. Factors that are relevant in evaluating the
level of threats in these circumstances also include the nature or closeness of the relationships
set out in paragraph 2350.13 A1.
Financial incentives for team members
2350.15 A1 An insolvency practitioner or members of the insolvency team might be offered an inducement
by their employer to achieve certain targets relating to insolvency appointments. Such
arrangements might create threats to compliance with the fundamental principles.
2350.15 A2 Examples of circumstances that might create a self-interest threat include situations in which the
insolvency practitioner or members of the insolvency team:
a) Holds a direct or indirect financial interest in the employing organisation and the value of
that financial interest might be directly affected by decisions made by the insolvency
practitioner.
b) Is eligible for a profit-related bonus and the value of that bonus might be directly affected by
decisions made by the insolvency practitioner.
c) Participates in arrangements which provide incentives to achieve targets.
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ADVERTISING, MARKETING AND OTHER PROMOTIONAL ACTIVITIES
Introduction
2360.1 Insolvency practitioners are required to comply with the fundamental principles and apply the
conceptual framework to identify, evaluate and address threats.
2360.2 When an insolvency practitioner seeks an insolvency appointment or work that might lead to an
insolvency appointment through advertising or other forms of marketing or promotional activity,
there might be threats to compliance with the fundamental principles, including integrity and
professional behaviour.
2360.3 This section sets out requirements and application material relevant to applying the conceptual
framework in relation to advertising and marketing for insolvency appointments and includes the
content of the websites and other promotional activities.
2360.4 Reference should also be made to Specialist advice and services (2320) and Referral fees and
commissions (2340).
Requirements and Application Material
R2360.5 When undertaking marketing or promotional activities, an insolvency practitioner shall
not bring the profession into disrepute. An insolvency practitioner shall be honest and
truthful and shall not make:
a) exaggerated claims for the services offered by, or the qualifications or experience of,
the insolvency practitioner; or
b) disparaging references or unsubstantiated comparisons to the work of others.
R2360.6 When considering whether to accept an insolvency appointment an insolvency
practitioner shall be satisfied that any advertising, marketing or other form of
promotional activity pursuant to which the insolvency appointment might have been
obtained:
a) has been fair and not misleading
b) has avoided unsubstantiated or disparaging statements
c) has complied with relevant codes of practice and guidance in relation to advertising
d) has been clearly distinguishable as advertising or marketing material, and has been
legal, decent, honest and truthful.
2360.6 A1 If reference is made in advertisements or other forms of marketing to fees or to the cost of the
services to be provided, the insolvency practitioner needs to be satisfied that the basis of
calculation and the range of services that the reference is intended to cover has been provided.
The insolvency practitioner needs to take care to ensure that such references are clear as to the
precise range of services and the time commitment that the reference is intended to cover.
2360.6 A2 If an insolvency practitioner is in doubt about whether a form of advertising or marketing is
appropriate, the insolvency practitioner is encouraged to consult with their authorising body.
R 2360.7 Where an insolvency practitioner or the firm obtains work via a third party or a third party
conducts marketing activities on behalf of the insolvency practitioner or the firm, the
insolvency practitioner shall be responsible for ensuring that the third party follows the
application material above.
2360.7 A1 When obtaining work via a third party or using a third party to conduct marketing activities
insolvency practitioners have a responsibility to ascertain that a referral manner is in
accordance with this Code because insolvency practitioners cannot do, or be seen to do,
through others what they cannot not do themselves.
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R2360.8 Insolvency practitioners shall never promote or seek to promote their services, or the
services of other insolvency practitioners, in such a way, or to such an extent, as to
amount to harassment.
41
DEALING WITH THE ASSETS OF AN ENTITY
Introduction
2370.1 Insolvency practitioners are required to comply with the fundamental principles and apply the
conceptual framework to identify, evaluate and address threats.
2370.2 When an insolvency practitioner realises assets, this might create threats to compliance with
one or more of the fundamental principles. This section sets out specific application material
relevant to applying the conceptual framework in such circumstances.
Requirements and Application Material
R2370.3 Except in circumstances which clearly do not impair the insolvency practitioner’s
objectivity, insolvency practitioners appointed to any insolvency appointment in relation
to an entity, shall not themselves acquire, directly or indirectly, any of the assets of an
entity, nor knowingly permit any individual within the firm, or any close or immediate
family member of an individual within the firm, directly or indirectly, to do so.
2370.3 A1 Where the assets and business of an insolvent company are sold by an insolvency practitioner
shortly after appointment on pre-agreed terms, this could lead to an actual or perceived threat to
objectivity. The sale could also be seen as a threat to objectivity by creditors or others not
involved in the prior agreement.
2370.3 A2 Examples of actions that might be safeguards to address threats to objectivity include:
a) obtaining an independent valuation of the assets or business being sold;
b) considering other potential purchasers.
2370.3 A3 It is important for an insolvency practitioner to take care to ensure (where to do so does not
conflict with any legal or professional obligation) that their decision-making processes are
transparent, understandable and readily identifiable to all third parties who could be affected by
a sale or proposed sale.
42
THE INSOLVENCY PRACTITIONER AS AN EMPLOYEE
Introduction
2380.1 All insolvency practitioners are required to comply with the fundamental principles and apply the
conceptual framework to identify, evaluate and address threats.
2380.2 Where an insolvency practitioner is an employee of a firm, the insolvency practitioner might face
particular threats to compliance with the fundamental principles. This section sets out specific
application material relevant to applying the conceptual framework in such circumstances. It
does not describe all of the facts and circumstances, including professional activities, interests
and relationships, that could be encountered by insolvency practitioner who is an employee,
which create or might create threats to compliance with the fundamental principles. Therefore,
the conceptual framework requires insolvency practitioners who are employees to be alert for
such facts and circumstances.
2380.3 On occasion, where the insolvency practitioner is an employee or is considering accepting an
offer of employment, the insolvency practitioner might be unable to address the threats to
compliance with the fundamental principles. In those circumstances the insolvency practitioner
will need to consider whether they can accept the offer of employment or resign from their
current employment.
Requirements and Application Material
2380.4 An insolvency practitioner might be an employee, contractor, partner, or director within the firm.
The legal form of the relationship of the insolvency practitioner with their employer has no
bearing on the ethical responsibilities placed on the insolvency practitioner.
R2380.5 An insolvency practitioner who is an employee shall comply with the fundamental
principles.
2380.5 A1 The insolvency practitioner who is an employee might have a reduced ability to control or
influence matters within the firm which might affect the actions available as safeguards to
address threats to compliance with the fundamental principles.
2380.5 A2 The following are examples of facts and circumstances that might create threats for an
insolvency practitioner as an employee:
• being eligible for a bonus related to achieving targets or profits;
• having inadequate resources for the performance of an insolvency appointment;
• a lack of control over processes and internal governance;
• being threatened with dismissal or demotion over a disagreement about an insolvency
appointment;
• an individual attempting to influence the decision-making process of the insolvency
practitioner.
R2380.6 An insolvency practitioner shall consider whether there are appropriate safeguards
available to ensure compliance with the fundamental principles before accepting an offer
of employment.
2380.6 A1 Examples of actions that might be safeguards to address such threats prior to accepting an offer
of employment include:
a) Appropriate provisions within any contract of employment or separate legal agreement with
the employer acknowledging that the insolvency practitioner has a duty to comply with the
Code of Ethics of their authorising body and that the insolvency practitioner will be able to
take all necessary steps they deem necessary to comply with the fundamental principles.
b) Ensuring that policies and procedures are in place within the firm to prohibit individuals who
are not members of the insolvency team from inappropriately influencing the conduct of an
43
insolvency appointment.
c) Ensuring that the firm has published policies and procedures to encourage and empower
individuals within the firm to communicate to senior levels within the firm any issue relating
to compliance with the fundamental principles that concern them.
d) Obtaining sufficient information to obtain an understanding of the structure and ownership
of the firm.
2380.6 A2 If no actions are available to address these threats, it is expected that the insolvency practitioner
consider whether it is appropriate to accept the offer of employment.
2380.6 A3 The existence of certain conditions, policies and procedures established by the profession,
legislation, regulation, the firm, or the employing organization that can enhance the insolvency
practitioner acting ethically might also help identify threats to compliance with the fundamental
principles. In this context such factors could include:
a) Policies and procedures within the firm to prohibit individuals who are not members of the
insolvency team from inappropriately influencing the conduct of an insolvency appointment.
b) Published policies and procedures to encourage and empower individuals within the firm to
communicate to senior levels within the firm any issue relating to compliance with the
fundamental principles that concern them.
2380.6 A4 Examples of actions that might be safeguards to address threats at a particular time include:
a) reporting concerns to senior management within the firm
b) seeking legal advice or advice from their authorising body
c) reporting the concerns to their authorising body or the Complaints Gateway.
2380.6 A5 The more senior the position of the insolvency practitioner, the greater will be the ability and
opportunity to access information, and to influence policies, decisions made and actions taken
by others involved with the firm. To the extent that they are able to do so, taking into account
their position and seniority in the organisation, insolvency practitioners are expected to
encourage and promote an ethics-based culture in the organisation. Examples of actions that
might be taken include the introduction, implementation and oversight of:
• ethics education and training programs.
• ethics and whistle-blowing policies.
• policies and procedures designed to prevent non-compliance with laws and regulations.
R2380.7 Where threats to compliance with the fundamental principles cannot be eliminated or
reduced to an acceptable level then the insolvency practitioner shall not accept the
insolvency appointment or refuse to remain associated with the matter creating the
conflict.
2380.7 A1 In some circumstances this could mean taking steps to resign from the employment.
2380.7 A2 Reference should also be made to Obtaining specialist advice and services and Referral fees and
commissions.
44
RESPONDING TO NON-COMPLIANCE WITH LAWS AND REGULATIONS
Introduction
2390.1 Insolvency practitioners are required to comply with the fundamental principles and apply the
conceptual framework set to identify, evaluate and address threats.
2390.2 A self-interest or intimidation threat to compliance with the principles of integrity and
professional behaviour is created when an insolvency practitioner becomes aware of non-
compliance or suspected non-compliance with laws and regulations.
2390.3 An insolvency practitioner might encounter or be made aware of non-compliance or suspected
non-compliance in the course of carrying out professional activities. This section guides the
insolvency practitioner in assessing the implications of the matter and the possible courses of
action when responding to non-compliance or suspected non-compliance with:
a) Laws and regulations generally recognised to have a direct effect on the conduct of an
appointment.
b) Other laws and regulations that do not have a direct effect on the conduct of an appointment,
but compliance with which might be fundamental to the outcome of an appointment.
c) Other laws and regulations that do not have a direct effect on the conduct of an appointment,
but compliance with which might be fundamental to the operating aspects of the employing
organisation’s business, to its ability to continue its business, or to avoid material penalties.
Objectives of the insolvency practitioner in relation to non-compliance with laws and regulations
2390.4 A distinguishing mark of the insolvency profession is its acceptance of the responsibility to act in
the public interest. When responding to non-compliance or suspected non-compliance, the
objectives of the insolvency practitioner are:
a) To comply with the principles of integrity and professional behaviour;
b) By alerting management or, where appropriate, those charged with governance of the
entity, to seek to:
i. Enable them to rectify, remediate or mitigate the consequences of the
identified or suspected non-compliance; or
ii. Deter the commission of the non-compliance where it has not yet
occurred; and
c) By alerting management or, where appropriate, those charged with governance of the
employing organisation, to seek to:
i. Enable them to rectify, remediate or mitigate the consequences of the
identified or suspected non-compliance; or
ii. Deter the non-compliance where it has not yet occurred; and
d) To take such further action as appropriate in the public interest.
Requirements and Application Material
General
2390.5 A1 Non-compliance with laws and regulations (“non-compliance”) comprises acts of omission or
commission, intentional or unintentional, which are contrary to the prevailing laws or regulations
committed by the following parties:
a) an entity over which the insolvency practitioner has been appointed;
b) those charged with governance of an entity;
c) management of an entity;
45
d) other individuals working for or under the direction of an entity;
e) the insolvency practitioner’s employing organization;
f) those charged with governance of the employing organization;
g) management of the employing organization;
h) other individuals working for or under the direction of the employing organisation.
2390.5 A2 Examples of laws and regulations which this section addresses include those that deal with:
● insolvency processes and procedures.
● fraud, corruption and bribery.
● money laundering, terrorist financing and proceeds of crime.
● securities markets and trading.
● banking and other financial products and services.
● data protection.
● tax and pension liabilities and payments.
● environmental protection.
● public health and safety.
2390.5 A3 Non-compliance might result in fines, litigation or other consequences for the entity or
employing organisation, potentially materially affecting its financial statements. Importantly, such
non-compliance might have wider public interest implications in terms of potentially substantial
harm to creditors, employees, investors or the general public. For the purposes of this section,
an act that causes substantial harm is one that results in serious adverse consequences to any
of these parties in financial or non-financial terms. Examples include breaches of environmental
laws and regulations endangering the health or safety of employees or the public and
perpetration of fraud against appointment estates resulting in significant financial loss to
creditors.
R2390.6 In some jurisdictions, there are legal or regulatory provisions governing how insolvency
practitioners should address non-compliance or suspected non-compliance. These legal
or regulatory provisions might differ from or go beyond the provisions in this section, for
example, anti-money laundering legislation. When encountering such non-compliance or
suspected non-compliance, the insolvency practitioner shall obtain an understanding of
those legal or regulatory provisions and comply with them, including:
a) any requirement to report the matter to an appropriate authority; and
b) any prohibition on alerting the relevant party.
2390.6 A1 A prohibition on alerting the relevant party might arise, for example, pursuant to anti-money
laundering legislation.
2390.6 A2 An insolvency practitioner who encounters or is made aware of matters that are clearly
inconsequential is not required to comply with this section unless other laws or regulations
require it. For example, an insolvency practitioner in the UK needs to comply with Anti-Money
Laundering legislation which contains no de minimis threshold for reporting. Whether a matter is
clearly inconsequential is to be judged with respect to its nature and its impact, financial or
otherwise, on the entity or employing organisation, its stakeholders and the general public.
2390.6 A3 This section does not address:
a) Personal misconduct unrelated to the business activities of the entity or employing
organisation; and
46
b) Unless required by other laws or regulations, non-compliance by parties other than those
specified in paragraph 2390.5 A1. This includes, for example, circumstances where an
insolvency practitioner has been engaged by a client to perform a due diligence assignment
on a third party entity and the identified or suspected non-compliance has been committed
by that creditor.
The insolvency practitioner might nevertheless find the guidance in this section helpful in considering how to
respond in these situations.
Responsibilities of Management and Those Charged with Governance
2390.7 A1 Management of an entity or employing organisation, with the oversight of those charged with
governance, is responsible for ensuring that the entity’s business activities are conducted in
accordance with laws and regulations. Management and those charged with governance are
also responsible for identifying and addressing any non-compliance by:
a) the entity or employing organisation;
b) an individual charged with governance of the entity or employing organisation;
c) a member of management; or
d) other individuals working for or under the direction of the entity or the employing
organisation.
Responsibilities of all insolvency practitioners
R2390.8 If protocols and procedures exist within the insolvency practitioner’s employing
organisation to address non-compliance or suspected non-compliance, the insolvency
practitioner shall consider them in determining how to respond to such non-compliance.
2390.8 A1 Many employing organisations have established protocols and procedures regarding how to
raise non-compliance or suspected non-compliance internally. These protocols and procedures
include, for example, an ethics policy or internal whistle-blowing mechanism. Such protocols
and procedures might allow matters to be reported anonymously through designated channels.
R2390.9 Where an insolvency practitioner becomes aware of a matter to which this section
applies, the steps that the insolvency practitioner takes to comply with this section shall
be taken on a timely basis. In taking timely steps, the insolvency practitioner shall have
regard to the nature of the matter and the potential harm to the interests of the entity,
creditors, employees, investors, or the general public.
2390.9 A1 Insolvency practitioners are reminded especially of the guidance in paragraph R2390.6 above in
relation to over-riding laws and regulations.
Obtaining an understanding of the matter and addressing It with management and those charged
with governance
R2390.10 If an insolvency practitioner becomes aware of information concerning non-compliance
or suspected non-compliance, the insolvency practitioner shall seek to obtain an
understanding of the matter. This understanding shall include the nature of the non-
compliance or suspected non-compliance and the circumstances in which it has
occurred or might be about to occur.
2390.10 A1 The insolvency practitioner is expected to apply knowledge and expertise, and exercise
professional judgment. However, the insolvency practitioner is not expected to have a level of
understanding of laws and regulations beyond that which is required for the appointment.
Whether an act constitutes actual non-compliance is ultimately a matter to be determined by a
court or other appropriate adjudicative body.
2390.10 A2 Depending on the nature and significance of the matter, the insolvency practitioner might
consult on a confidential basis with others within the firm, a network firm or a professional body,
or with legal counsel.
47
2390.10 A3 The insolvency practitioner is reminded especially of the guidance in paragraph R2390.6 above
in relation to over-riding laws and regulations.
R2390.11 If the insolvency practitioner identifies or suspects that non-compliance has occurred or
might occur, the insolvency practitioner shall discuss the matter with the appropriate
level of management. If the insolvency practitioner has access to those charged with
governance, the insolvency practitioner shall also discuss the matter with them where
appropriate.
2390.11 A1 The purpose of the discussion is to clarify the insolvency practitioner’s understanding of the facts
and circumstances relevant to the matter and its potential consequences. The discussion also
might prompt management or those charged with governance to investigate the matter.
2390.11 A2 The appropriate level of management with whom to discuss the matter is a question of
professional judgment. Relevant factors to consider include:
● the nature and circumstances of the matter;
● the individuals actually or potentially involved;
● the likelihood of collusion;
● the potential consequences of the matter;
● whether that level of management is able to investigate the matter and take appropriate
action.
Communicating the matter to the entity’s external auditor
R2390.12 If the insolvency practitioner is liquidator in a members voluntary liquidation for:
a) an audit client of the firm or a network firm; or
b) a component of an audit client of the firm or a network firm,
the insolvency practitioner shall consider whether to communicate the non-compliance
or suspected non-compliance within the firm or to the network firm, as appropriate.
Where the communication is made, it shall be made in accordance with the firm’s or
network’s protocols or procedures. In the absence of such protocols and procedures, it
shall be made directly to the audit engagement partner.
R2390.13 If the insolvency practitioner is supervisor of a Company Voluntary Arrangement the
insolvency practitioner shall consider whether to communicate the non-compliance or
suspected non-compliance to the firm that is the client’s external auditor, if any.
Relevant factors to consider
2390.13 A1 Factors relevant to considering the communication in accordance with paragraphs R2390.12
and R2390.13 include:
● Whether doing so would be contrary to law or regulation.
● Whether there are restrictions about disclosure imposed by a regulatory agency or
prosecutor in an ongoing investigation into the non-compliance or suspected non-
compliance.
● Whether management or those charged with governance have already informed the
entity’s external auditor about the matter.
● The likely materiality of the matter to the audit of the client’s financial statements or, where
the matter relates to a component of a group, its likely materiality to the audit of the group
financial statements.
Purpose of Communication
2390.13 A2 In the circumstances addressed in paragraphs R2390.12 to R2390.13, the purpose of the
communication is to enable the audit engagement partner to be informed about the non-
48
compliance or suspected non-compliance and to determine whether and, if so, how to address
it in accordance with the provisions of this section.
Considering whether further action is needed
R2390.14 The insolvency practitioner shall also consider whether further action is needed in the
public interest.
2390.14 A1 Whether further action is needed, and the nature and extent of it, will depend on factors such
as:
● the legal and regulatory framework;
● the appropriateness and timeliness of the response of management and, where applicable,
those charged with governance;
● the urgency of the situation;
● the involvement of management or those charged with governance in the matter;
● the likelihood of substantial harm to the interests of the client, investors, creditors,
employees or the general public.
2390.14 A2 Further action by the insolvency practitioner might include:
● Disclosing the matter to an appropriate authority even when there is no legal or regulatory
requirement to do so.
● Resigning from the appointment where permitted by law or regulation.
2390.14 A3 In considering whether to disclose to an appropriate authority, relevant factors to take into
account include:
● Whether doing so would be contrary to law or regulation.
● Whether there are restrictions about disclosure imposed by a regulatory agency or
prosecutor in an ongoing investigation into the non-compliance or suspected non-
compliance.
R2390.15 If the insolvency practitioner determines that disclosure of the non-compliance or
suspected non-compliance to an appropriate authority is an appropriate course of
action in the circumstances, that disclosure is permitted pursuant to paragraph
R2104.3(d) of the Code. When making such disclosure, the insolvency practitioner shall
act in good faith and exercise caution when making statements and assertions. The
insolvency practitioner shall also consider whether it is appropriate to inform the entity
of the insolvency practitioner’s intentions before disclosing the matter.
Imminent breach
R2390.16 In exceptional circumstances, the insolvency practitioner might become aware of actual
or intended conduct that the insolvency practitioner has reason to believe would
constitute an imminent breach of a law or regulation that would cause substantial harm
to investors, creditors, employees or the general public. Having first considered whether
it would be appropriate to discuss the matter with management or those charged with
governance of the entity, the insolvency practitioner shall exercise professional
judgment and determine whether to disclose the matter immediately to an appropriate
authority in order to prevent or mitigate the consequences of such imminent breach of
law or regulation. If disclosure is made, that disclosure is permitted pursuant to
paragraph R2104.3(d) of the Code.
Seeking advice
2390.16 A1 The insolvency practitioner might consider:
● consulting internally;
49
● obtaining legal advice to understand the professional or legal implications of taking any
particular course of action;
● consulting on a confidential basis with a regulatory body or their authorising body.
Documentation
2390.16 A2 In relation to non-compliance or suspected non-compliance that falls within the scope of this
section, the insolvency practitioner is encouraged to document:
● the matter;
● the results of discussion with management and, where applicable, those charged with
governance and other parties;
● how management and, where applicable, those charged with governance have responded
to the matter;
● the courses of action the insolvency practitioner considered, the judgments made and the
decisions that were taken;
● how the insolvency practitioner is satisfied that the insolvency practitioner has fulfilled the
responsibility set out in paragraph R2390.14.
2390.16 A3 The insolvency practitioner is encouraged to consider whether there is a need for any such
documentation to be filed separately.
Responsibilities of members of the insolvency team
R2390.17 If, in the course of carrying out professional activities, a member of the insolvency team
becomes aware of information concerning non-compliance or suspected non-
compliance, the team member shall seek to obtain an understanding of the matter. This
understanding shall include the nature of the non-compliance or suspected non-
compliance and the circumstances in which it has occurred or might occur.
2390.17 A1 The team member is expected to apply knowledge and expertise, and exercise professional
judgment. However, the team member is not expected to have a level of understanding of laws
and regulations greater than that which is required for the team member’s role within the
employing organisation. Whether an act constitutes non-compliance is ultimately a matter to be
determined by a court or other appropriate adjudicative body.
2390.17 A2 Depending on the nature and significance of the matter, the team member might consult on a
confidential basis with others within the employing organisation or an authorising body, or with
legal counsel.
R2390.18 If the team member identifies or suspects that non-compliance has occurred or might
occur, the team shall, subject to paragraph R2390.17, inform an immediate superior to
enable the superior to take appropriate action. If the team member’s immediate superior
appears to be involved in the matter, the team member shall inform the next higher level
of authority within the employing organisation.
R2390.19 In exceptional circumstances, the team member may determine that disclosure of the
matter to an appropriate authority is an appropriate course of action. If the team member
does so pursuant to paragraphs 2390.17 A2 and A3, that disclosure is permitted
pursuant to paragraph R2104.3(d) of the Code. When making such disclosure, the team
member shall act in good faith and exercise caution when making statements and
assertions.
Documentation
2390.20 A1 In relation to non-compliance or suspected non-compliance that falls within the scope of this
section, the team member is encouraged to have the following matters documented:
● the matter;
50
● the results of discussions with the team member’s superior, management and, where
applicable, those charged with governance and other parties;
● how the team member’s superior has responded to the matter;
● the courses of action the team member considered, the judgments made and the decisions
that were taken.
2390.20 A2 The team member is encouraged to consider whether there is a need for any such
documentation to be filed separately.
51
THE APPLICATION OF THE FRAMEWORK TO SPECIFIC SITUATIONS
Introduction to specific situations
2500.1 The following examples describe specific circumstances and relationships that will create threats
to compliance with the fundamental principles. The examples are intended to assist an insolvency
practitioner and the members of the insolvency team to assess the implications of similar, but
different, circumstances and relationships.
2500.2 The examples are included in four sections. Section 2510 contains examples which do not relate
to a previous or existing insolvency appointment. Section 2520 contains examples that do relate
to a previous or existing insolvency appointment. Section 2530 contains some examples under
Scottish law. Section 2540 contains examples relevant to the Republic of Ireland.
2500.3 The examples included in this section are not exhaustive, and the substance of the circumstances
and relationships should be considered.
2500.4 When considering specific situations, insolvency practitioners should refer to the section on
professional and personal relationships and changes in circumstances. As interests and
relationships might change during an appointment, a significant professional relationship can
arise as a result of an insolvency practitioner acting as an officeholder in a prior insolvency. An
insolvency practitioner is expected to consider both pre-appointment engagements, and / or prior
insolvency appointments when assessing whether they have a significant professional
relationship. Insolvency practitioners are also expected to document their considerations and
conclusions when assessing specific situations.
52
Section 2510 - Examples that do not relate to a previous or existing insolvency appointment
2510.1 Insolvency appointment following audit related work
Previous relationship: The firm or an individual within the firm has completed audit related
work.
Response: A Significant Professional Relationship will normally arise where the audit related
work was completed within the previous 3 years. An insolvency practitioner shall not take the
insolvency appointment as it is unlikely that appropriate action can be taken to reduce the
threat to compliance with the fundamental principles to an acceptable level.
Where audit related work was completed more than 3 years before the proposed date of the
appointment of the insolvency practitioner a threat to compliance with the fundamental
principles could still arise. The insolvency practitioner shall evaluate any such threat and
consider whether the threat can be eliminated or reduced to an acceptable level by the use of
safeguards.
This restriction does not apply where the insolvency appointment is in a members’ voluntary
liquidation; an insolvency practitioner may normally take an appointment as liquidator.
However, the insolvency practitioner shall consider whether there are any other
circumstances that give rise to an unacceptable threat to compliance with the fundamental
principles. Further, the insolvency practitioner shall satisfy them self that the directors’
declaration of solvency is likely to be substantiated by events.
2510.2 Appointment as Investigating Accountant at the instigation of a creditor
Previous relationship: The firm or an individual within the firm was instructed by, or at the
instigation of, a creditor or other party having a financial interest in an entity, to investigate,
monitor or advise on its affairs.
Response: A Significant Professional Relationship would not normally arise in these
circumstances provided that:-
a) there has not been a direct involvement by an individual within the firm in the
management of the entity; and
b) the firm had its principal client relationship with the creditor or other party, rather than
with the company or proprietor of the business; and
c) the entity was aware of this.
An insolvency practitioner shall however consider all the circumstances before accepting an
insolvency appointment, including the effect of any discussions or lack of discussions about
the financial affairs of the company with its directors, and whether such circumstances give
rise to an unacceptable threat to compliance with the fundamental principles.
Where such an investigation was conducted at the request of, or at the instigation of, a
secured creditor who then requests an insolvency practitioner to accept an insolvency
appointment as an administrator or administrative receiver, the insolvency practitioner shall
satisfy them self that the company, acting by its board of directors, does not object to them
taking such an insolvency appointment. If the secured creditor does not give prior warning of
the insolvency appointment to the company or if such warning is given and the company
objects but the secured creditor still wishes to appoint the insolvency practitioner, the
insolvency practitioner shall consider whether the circumstances give rise to an unacceptable
threat to compliance with the fundamental principles.
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Section 2520 - Examples relating to previous or existing insolvency appointments
2520.1 Insolvency appointment following an appointment as administrative or other receiver
Previous appointment: An individual within the firm has been administrative or other receiver.
Proposed appointment: Any insolvency appointment.
Response: It is unlikely that appropriate action can be taken to reduce the threat to
compliance with the fundamental principles to an acceptable level. An insolvency practitioner
shall not accept any insolvency appointment.
This restriction does not, however, apply where the individual within the firm was appointed a
receiver by the court. In such circumstances, the insolvency practitioner shall however
consider whether there are any other circumstances which give rise to an unacceptable threat
to compliance with the fundamental principles.
2520.2 Administration or Liquidation following appointment as supervisor of a voluntary arrangement
Previous appointment: An individual within the firm has been supervisor of a company
voluntary arrangement.
Proposed appointment: Administrator or liquidator.
Response: An insolvency practitioner may normally accept an appointment as administrator
or liquidator. However the insolvency practitioner shall consider whether there are any
circumstances that give rise to an unacceptable threat to compliance with the fundamental
principles.
2520.3 Liquidation following appointment as administrator
Previous Appointment: An individual within the firm has been administrator.
Proposed Appointment: Liquidator.
Response: An insolvency practitioner may normally accept an appointment as liquidator
provided the insolvency practitioner has complied with the relevant legislative requirements.
However, the insolvency practitioner shall also consider whether there are any circumstances
that give rise to an unacceptable threat to compliance with the fundamental principles.
2520.4 Conversion of members’ voluntary liquation into creditors’ voluntary liquidation
Previous appointment: An individual within the firm has been the liquidator of a company in
a members’ voluntary liquidation.
Proposed appointment: Liquidator in a creditors’ voluntary liquidation, where it is necessary
to seek a nomination from the company’s creditors.
Response: Where there has been a Significant Professional Relationship, an insolvency
practitioner may continue or accept an appointment (subject to creditors’ decision or deemed
consent) only if the insolvency practitioner concludes that the company will eventually be able
to pay its debts in full, together with interest.
However, the insolvency practitioner shall consider whether there are any other
circumstances that give rise to an unacceptable threat to compliance with the fundamental
principles.
2520.5 Bankruptcy following appointment as supervisor of an individual voluntary arrangement
Previous appointment: An individual within the firm has been supervisor of an individual
voluntary arrangement.
Proposed Appointment: Trustee in bankruptcy.
Response: An insolvency practitioner may normally accept an appointment as trustee in
bankruptcy. However, the insolvency practitioner shall consider whether there are any
circumstances that give rise to an unacceptable threat to compliance with the fundamental
54
principles.
55
Section 2530 - Examples in respect of cases conducted under Scots Law
2530.1 Sequestration following appointment as trustee under a trust deed for creditors
Previous appointment: An individual within the firm has been trustee under a trust deed for
creditors.
Proposed appointment: Interim trustee or trustee in a sequestration.
Response An insolvency practitioner may normally accept an appointment as an interim
trustee or trustee in the sequestration. However, the insolvency practitioner shall consider
whether there are any circumstances that give rise to an unacceptable threat to compliance
with the fundamental principles.
2530.2 Sequestration where the Accountant in Bankruptcy is trustee following appointment as trustee
under a trust deed for creditors
Previous appointment: An individual within the firm has been trustee under a trust deed for
creditors.
Proposed appointment: Administering the sequestration under a contract for insolvency
services with the Accountant in Bankruptcy.
Response: The firm may normally accept an appointment under the contract for insolvency
services with the Accountant in Bankruptcy. However, an individual within the firm shall
consider whether there are any circumstances that give rise to an unacceptable threat to
compliance with the fundamental principles.
2530.2 Sequestration or trust deed trustee following appointment as continuing money adviser under
a Debt Arrangement Scheme
Previous appointment: An individual within the firm has been a continuing money advisor
under a revoked Debt Arrangement Scheme relating to the debtor.
Proposed appointment: Trustee in a sequestration or a trust deed
Response: An insolvency practitioner may normally accept an appointment as a trustee
under a trust deed or as a trustee in a sequestration. However, the insolvency practitioner
shall consider whether there are any circumstances that give rise to an unacceptable threat to
compliance with the fundamental principles.
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Section 2540 - Application in the Republic of Ireland
2540.1 In relation to insolvency practice within the Republic of Ireland, the following amended definitions
shall apply:
Authorising A prescribed accountancy body under any legislation governing the
body administration of insolvency in the Republic of Ireland;
A Supervisory Authority established under legislation governing insolvency
in the Republic of Ireland; or
The Insolvency Service of Ireland established pursuant to section 8 of the
Personal Insolvency Act 2012.
Insolvency A formal appointment under any legislation in the Republic of Ireland which
appointment must be undertaken by an insolvency practitioner.
Insolvency An individual who is qualified to act as a liquidator under the Companies Act
practitioner 2014 in the Republic of Ireland or a person that is appointed as a receiver to
a company or the assets of a company in Ireland.
2540.2 Insolvency practitioners shall comply with the requirements of this Code in relation to
insolvency practice within the Republic of Ireland. Referral Fees and Commissions notes that
the payment of such fees and commissions to any creditor or members is prohibited and gives
rise to a Category 2 offence pursuant to Section 642 of the Companies Act 2014.
2540.3 The following examples describe specific circumstances and relationships that will create
threats to compliance with the fundamental principles. The examples are intended to assist an
insolvency practitioner and the members of the insolvency team to assess the implications of
similar, but different, circumstances and relationships.
2540.4 Liquidation following appointment as a receiver
Previous appointment: An individual within the firm has been receiver of any assets of a
company or any company within a group with which it is associated.
Proposed appointment: Liquidator
Response: Where the receivership was completed within the previous 3 years, an insolvency
practitioner or an individual within the firm shall not accept an appointment as liquidator as it is
unlikely that appropriate action can be taken to reduce the threat to compliance with the
fundamental principles to an acceptable level.
Where the receivership was completed more than 3 years before the proposed date of winding
up a threat to compliance with the fundamental principles might still arise. The Insolvency
practitioner or individual within the firm shall evaluate any such threat and consider whether the
threat can be eliminated or reduced to an acceptable level by the use of safeguards.
2540.5 An appointment following a significant professional relationship
Previous appointment: The firm or an individual within the firm has had a significant
professional relationship with a company or any company within a group with which it is
associated.
Proposed appointment: Any insolvency appointment
Response: Where the significant professional relationship was present within the previous 3
years, an insolvency practitioner or an individual within the firm shall not accept an insolvency
appointment as it is unlikely that appropriate action can be taken to reduce the threat to
compliance with the fundamental principles to an acceptable level.
Where the significant prior relationship was terminated more than 3 years before the proposed
date of the insolvency appointment a threat to compliance with the fundamental principles might
still arise. The insolvency practitioner or individual within the firm shall evaluate any such threat
57
and consider whether the threat can be eliminated or reduced to an acceptable level by use of
safeguards.
2540.6 Liquidation following examination
Previous appointment: An individual within the firm has been examiner and the examiner is
unable to formulate proposals for the survival of the company or where the court fails to confirm
the examiner's proposals for the survival of the company, and the company subsequently goes
into liquidation (either voluntarily or by order of the court).
Response: An insolvency practitioner may normally accept an appointment as liquidator provided
the insolvency practitioner has complied with the relevant legislative requirements. However, the
insolvency practitioner shall also consider whether there are any circumstances that give rise to
an unacceptable threat to compliance with the fundamental principles.
2540.7 Receivership following examinership
Previous appointment: The firm or an individual within the firm has been examiner and the
examiner is unable to formulate proposals for the survival of the company or the court fails to
confirm the examiner's proposals for the survival of the company, and the company
subsequently goes into liquidation (either voluntarily or by order of the court) or a secured lender
appoints a receiver.
Response: An insolvency practitioner may normally accept an appointment as receiver
provided the insolvency practitioner has complied with the relevant legislative requirements.
However, the insolvency practitioner shall also consider whether there are any circumstances
that give rise to an unacceptable threat to compliance with the fundamental principles.
2540.8 Insolvency appointment following audit related work
Previous relationship: The firm or an individual within the firm has completed audit related
work.
Response: A significant professional relationship will normally arise where the audit related work
was completed within the previous 3 years. An individual within a firm shall not take the
insolvency appointment as it is unlikely that appropriate action can be taken to reduce the threat
to compliance with the fundamental principles to an acceptable level.
Where audit related work was completed more than 3 years before the proposed date of the
appointment of the insolvency practitioner a threat to compliance with the fundamental principles
might still arise. The insolvency practitioner shall evaluate any such threat and consider whether
the threat can be eliminated or reduced to an acceptable level by the use of safeguards.
Note - Section 635 of the Companies Act 2014 prohibits an auditor from acting as a liquidator
when they are or have been in the previous twenty four months prior to the date of
commencement of the insolvency appointment, auditor to any client, even a solvent one.
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Definitions and interpretation
Authorising body A body declared to be a recognised professional body under any legislation
governing the administration of insolvency in the United Kingdom.
Close or immediate A spouse, civil partner (or equivalent), dependant, parent, child or sibling.
family
Employee A person subject to a contract of employment or a contract for services with an
insolvency practitioner or a firm.
Entity Any natural or legal person or any group of such persons, including a
partnership.
Firm The firm (a sole practitioner, partnership, limited liability partnership or
corporation) in which the insolvency practitioner practises together with:
a) an entity that controls the firm, through ownership, management or other
means
b) an entity controlled by the firm, through ownership, management or other
means
c) an entity with which the firm is under common control through ownership,
management or other means.
Individual within the firm The insolvency practitioner, any principals in the firm and any employees of the
firm.
Insolvency appointment A formal appointment under the terms of legislation in the United Kingdom,
which must be undertaken by an insolvency practitioner.
Insolvency practitioner An individual who is authorised or recognised as an insolvency practitioner in
the United Kingdom by an authorising body.
Insolvency team All persons under the control or direction of an insolvency practitioner.
Network A larger structure:
a) that is aimed at co-operation; and
b) that is clearly aimed at profit or cost sharing or shares common ownership,
control or management, common quality control policies and procedures,
common business strategy, the use of a common brand name, or a
significant part of professional resources.
Principal In respect of a firm:
a) which is a company: a director
b) which is a partnership: a partner
c) which is a limited liability partnership: a member
d) which is comprised of a sole practitioner: that person.
Alternatively any person within the firm who is held out as being a director,
partner or member.
59
ETHICS CODE FOR MEMBERS
1. As a professional membership body promoting high standards of practice in relation to work undertaken
by its members, the Insolvency Practitioners Association (“IPA”) requires its members to adhere to certain
principles in all aspects of their professional work.
2. Furthermore, one of the bases for recognition (by the Secretary of State for Business, Energy and Industrial
Strategy) of the IPA as a body entitled to authorise its members to act as insolvency practitioners, is that
the IPA:
▪ will arrange for appropriate ethical guidance to be made available to its members;
▪ will ensure through its ethical code or guide that its members, when accepting appointments as
office holders, are and are seen to be independent from influences which could affect their
objectivity; and
▪ will firmly but fairly apply its relevant professional and ethical codes or guides in relation to the
activities of its members.
3. The Code of Ethics set out below (“the Code”) was produced by the Joint Insolvency Committee and has
been adopted in substantially similar terms by all of the bodies recognised under the relevant legislation
in England and Wales, Scotland and Ireland to grant licences to insolvency practitioners. The Code is
stated to apply to all Insolvency Practitioners. However, all members are required to adhere to the Code
and in particular the spirit of the Code (with such modifications as are appropriate in all the circumstances)
in all their professional and business activities and in other circumstances where to fail to do so might bring
discredit upon themselves or the IPA.
4. The Code will replace all previous Codes of Ethics issued by the Council. For the purposes of Article 66
of the Articles of Association of the IPA misconduct shall include any breach by a member of the Code.
March 2020
INSOLVENCY CODE OF ETHICS
Table of content
GENERAL APPLICATION OF THE CODE
1 Introduction
100 Fundamental Principles
110 Conceptual framework
120 Breaches of the code
130 Record keeping
140 Ethical conflict resolution
SPECIFIC APPLICATION OF THE CODE
200 Introduction
210 Insolvency appointments
300 Acting with sufficient expertise
310 Conflicts of interest and professional and personal relationships
320 Specialist advice and services
330 Agencies and referrals
340 Referral fees and commission
350 Inducements, including gifts and hospitality
360 Advertising and marketing for insolvency appointments
370 Dealing with the assets of an entity
380 The insolvency practitioner as an employee
390 Responding to non-compliance with laws and regulations
500 The application of the framework to specific situations
510 – examples that do not relate to a previous or existing insolvency appointment
520 – examples relating to previous or existing insolvency appointments
530 – examples in respect of cases conducted under Scots Law
600 Application in the Republic of Ireland
Definitions and interpretation
Effective from 1 May 2020
THE PRACTICE OF INSOLVENCY
INTRODUCTION
1.1 This Code sets out the obligations of insolvency practitioners to meet the ethical requirements
expected of them.
1.2 An authorising body must, so far as is reasonably practicable, act in a way which protects and
promotes the public interest. This Code forms part of the framework used to meet this
objective.
Requirements and Application Material
1.3 A1 Requirements and application material are to be read and applied with the objective of
complying with the fundamental principles and applying the conceptual framework.
Requirements
1.3 A2. Requirements are designated with the letter “R” and, in most cases, include the word “shall.”
The word “shall” in the Code imposes an obligation on an insolvency practitioner to comply
with the specific provision in which “shall” has been used.
1.3 A3. In some situations, the Code provides a specific exception to a requirement. In such a
situation, the provision is designated with the letter “R” but uses “may” or conditional
wording.
1.3 A4 When the word “may” is used in the Code, it denotes permission to take a particular action in
certain circumstances, including as an exception to a requirement. It is not used to denote
possibility.
1.3 A5 When the word “might” is used in the Code, it denotes the possibility of a matter arising, an
event occurring or a course of action being taken. The term does not ascribe any particular
level of possibility or likelihood when used in conjunction with a threat, as the evaluation of
the level of a threat depends on the facts and circumstances of any particular matter, event or
course of action.
Application Material
1.4 A1 In addition to requirements, the Code contains application material that provides context
relevant to a proper understanding of the Code. In particular, the application material is
intended to help an insolvency practitioner to understand how to apply the conceptual
framework to a particular set of circumstances and to understand and comply with a specific
requirement. While such application material does not of itself impose a requirement,
consideration of the material is necessary to the proper application of the requirements of the
Code, including application of the conceptual framework. Application material is designated
with the letter “A.”
1.4 A2 Where application material includes lists of examples these lists are not intended to be
exhaustive.
R1.5 In order to protect and promote the public interest, an insolvency practitioner shall observe
and comply with this Code. If an insolvency practitioner is prohibited from complying with
certain parts of this Code by law or regulation, the insolvency practitioner shall comply with
all other parts of this Code.
1.5.A1 The Code establishes the fundamental principles of ethics for insolvency practitioners and
provides a framework for insolvency practitioners to:
a) identify threats to compliance with the fundamental principles;
b) evaluate the significance of the threats identified; and
c) apply safeguards, where available and capable of being applied, to reduce the threats to a
level at which an insolvency practitioner using the reasonable and informed third party
test would likely conclude that the insolvency practitioner complies with the fundamental
principles.
R1.6 An insolvency practitioner shall use professional judgement in applying this framework.
1.6 A1 The Code also describes how the ethical framework applies in certain situations. It provides
examples of actions that might be appropriate to address threats to compliance with the
fundamental principles. It also describes situations where no action can address the threats,
and consequently, the circumstance or relationship creating the threats needs to be avoided.
Scope
R1.7 insolvency practitioners shall ensure that the Code is applied at all times in relation to the
conduct of an insolvency appointment or circumstances which might lead to an insolvency
appointment.
R1.8 insolvency practitioners shall follow the fundamental principles, apply the conceptual
framework and specific requirements of the Code in all their professional and business
activities whether carried out with or without reward and in other circumstances where to
fail to do so would bring discredit to the insolvency profession.
R1.9 insolvency practitioners shall be guided not merely by the terms but also by the spirit of the
Code.
1.9 A1 The Code provides examples of matters to take into account when insolvency practitioners are
considering their position, but ethical considerations are not limited to the examples. It is
necessary for insolvency practitioners to take into account how their conduct might be
perceived by a reasonable and informed third party.
R1.10 Although, an insolvency appointment will be personal to the insolvency practitioner rather
than their firm or employing organisation, insolvency practitioners shall ensure that work for
which they are responsible, which is undertaken by members of the insolvency team on their
behalf, is carried out in accordance with the requirements of this Code.
FUNDAMENTAL PRINCIPLES
General
100.1 A1 There are five fundamental principles of ethics for insolvency practitioners:
a) Integrity – to be straightforward and honest in all professional and business relationships.
b) Objectivity – not to compromise professional or business judgements because of bias,
conflict of interest or undue influence of others.
c) Professional Competence and Due Care – to:
i. Attain and maintain professional knowledge and skill at the level required to
ensure that a client or employing organization receives competent professional
service, based on current technical and professional standards and relevant
legislation; and
ii. Act diligently and in accordance with applicable technical and professional
standards.
d) Confidentiality – to respect the confidentiality of information acquired as a result of
professional and business relationships.
e) Professional Behaviour – to comply with relevant laws and regulations and avoid any
conduct that the insolvency practitioner knows or should know might discredit the
profession.
R100.2 An insolvency practitioner shall comply with each of the fundamental principles.
100.2 A1 The fundamental principles of ethics establish the standard of behaviour expected of an
insolvency practitioner. The conceptual framework establishes the approach which an insolvency
practitioner is required to apply to assist in complying with those fundamental principles.
Paragraphs R101.1 to R105.1 A2 set out requirements and application material related to each
of the fundamental principles.
100.2 A2 An insolvency practitioner might face a situation in which complying with one fundamental
principle conflicts with complying with one or more other fundamental principles. In such a
situation, the insolvency practitioner might consider consulting, on an anonymous basis if
necessary, with:
• others within the firm or employing organisation.
• those charged with governance.
• another insolvency practitioner from a different firm.
• a professional body.
• an authorising body.
• legal counsel.
However, such consultation does not relieve the insolvency practitioner from the responsibility
to exercise professional judgment to resolve the conflict or, if necessary, and unless prohibited
by law or regulation, disassociate from the matter creating the conflict.
INTEGRITY
R101.1 An insolvency practitioner shall comply with the principle of integrity, which requires an
insolvency practitioner to be straightforward and honest in all professional and business
relationships.
101.1 A1 Integrity implies fair dealing and truthfulness.
R101.2 An insolvency practitioner shall not knowingly be associated with reports, returns,
communications or other information where the insolvency practitioner believes that the
information:
a) Contains a materially false or misleading statement;
b) Contains statements or information provided recklessly; or
c) Omits or obscures required information where such omission or obscurity would be
misleading.
101.2 A1 If an insolvency practitioner provides a modified report in respect of such a report, return,
communication or other information, the insolvency practitioner is not in breach of paragraph
R101.2.
R101.3 When an insolvency practitioner becomes aware of having been associated with information
described in paragraph R101.2, the insolvency practitioner shall take steps to be
disassociated from that information.
OBJECTIVITY
R102.1 An insolvency practitioner shall comply with the principle of objectivity, which requires an
insolvency practitioner not to compromise professional or business judgement because of
bias, conflict of interest or undue influence of others.
102.1 A1 Objectivity is the state of mind which has regard to all considerations relevant to the task in
hand but no other.
R102.2 An insolvency practitioner shall not undertake a professional activity if a circumstance or
relationship unduly influences the insolvency practitioner’s professional judgement
regarding that activity.
PROFESSIONAL COMPETENCE AND DUE CARE
R103.1 An insolvency practitioner shall comply with the principle of professional competence and
due care, which requires an insolvency practitioner to:
a) Attain and maintain professional knowledge and skill at the level required to ensure that
a competent professional service is provided, based on current technical and
professional standards and relevant legislation; and
b) Act diligently and in accordance with applicable technical and professional standards.
103.1 A1 Professional competence requires the exercise of sound judgement in applying professional
knowledge and skill when undertaking professional activities.
103.1 A2 Maintaining professional competence requires a continuing awareness and an understanding
of relevant technical, professional and business developments. Continuing professional
development enables an insolvency practitioner to develop and maintain the capabilities to
perform competently within the professional environment
103.1 A3 Diligence encompasses the responsibility to act in accordance with the requirements of an
assignment, carefully, thoroughly and on a timely basis.
R103.2 In complying with the principle of professional competence and due care, an insolvency
practitioner shall take reasonable steps to ensure that those working in a professional
capacity under the insolvency practitioner’s authority have appropriate training and
supervision.
R103.3 Where appropriate, an insolvency practitioner shall make users of the insolvency
practitioner’s services or activities or their employing organisation aware of the limitations
inherent in the services or activities.
CONFIDENTIALITY
104.1 A1 The principle of confidentiality is not only to keep information confidential, but also to take all
reasonable steps to preserve confidentiality. Whether information is confidential or not will
depend on its nature.
R104.2 An insolvency practitioner in the role as office holder has a professional duty to report
openly to those with an interest in the outcome of the insolvency. An insolvency practitioner
shall always report on their acts and dealings as fully as possible given the circumstances of
the case, in a way that is transparent and understandable bearing in mind the expectations
of others and what a reasonable and informed third party would consider appropriate.
R104.3 An insolvency practitioner shall comply with the principle of confidentiality, which requires
an insolvency practitioner to respect the confidentiality of information acquired as a result
of professional and business relationships. An insolvency practitioner shall:
a) Be alert to the possibility of inadvertent disclosure, including in a social environment,
and particularly to a close business associate or an immediate or a close family member;
b) Maintain confidentiality of information within the firm or employing organisation;
c) Maintain confidentiality of information disclosed by the employing organisation;
d) Not disclose confidential information acquired as a result of professional and business
relationships outside the firm or employing organisation without proper and specific
authority, unless there is a legal or professional duty or right to disclose;
e) Not use confidential information acquired as a result of professional and business
relationships for the personal advantage of the insolvency practitioner or for the
advantage of a third party;
f) Not use or disclose any confidential information, either acquired or received as a result
of a professional or business relationship, after that relationship has ended; and
g) Take reasonable steps to ensure that personnel under the insolvency practitioner’s
control, and individuals from whom advice and assistance are obtained, respect the
insolvency practitioner’s duty of confidentiality.
104.3 A1 There are circumstances where insolvency practitioners are or might be required to disclose
confidential information or when such disclosure might be appropriate:
a) Disclosure is required by law, for example:
i. producing statutory reports for the creditors of the insolvent;
ii. submitting reports on the conduct of directors of an insolvent entity;
iii. production of documents or other provision of evidence in the course of legal
proceedings; or
iv. disclosure to the appropriate public authorities of infringements of the law that
come to light;
b) Disclosure is permitted by law and is authorised by the employing organisation; and
c) There is a professional duty or right to disclose, when not prohibited by law:
i. To comply with the quality review of an authorising body;
ii. To respond to an inquiry or investigation by an authorising body or the oversight
body;
iii. To protect the professional interests of an insolvency practitioner in legal
proceedings; or
iv. To comply with technical and professional standards, including ethics
requirements.
104.3 A2 In deciding whether to disclose confidential information, factors to consider, depending on the
circumstances, include:
• Whether the interests of any parties, including third parties whose interests might be
affected, could be harmed if the client or employing organisation consents to the disclosure
of information by the insolvency practitioner.
• Whether all the relevant information is known and substantiated, to the extent practicable.
Factors affecting the decision to disclose include:
o Unsubstantiated facts.
o Incomplete information.
o Unsubstantiated conclusions.
• The proposed type of communication, and to whom it is addressed.
• Whether the parties to whom the communication is addressed are appropriate recipients.
R104.4 An insolvency practitioner shall continue to comply with the principle of confidentiality even
after the end of the relationship between the insolvency practitioner and an employing
organisation. When changing employment or accepting an insolvency appointment , the
insolvency practitioner is entitled to use prior experience but shall not use or disclose any
confidential information acquired or received as a result of a professional or business
relationship.
PROFESSIONAL BEHAVIOUR
R105.1 An insolvency practitioner shall comply with the principle of professional behaviour, which
requires an insolvency practitioner to comply with relevant laws and regulations and avoid
any conduct that the insolvency practitioner knows or should know might discredit the
profession. An insolvency practitioner shall not knowingly engage in any business, occupation
or activity that impairs or might impair the integrity, objectivity or good reputation of the
insolvency profession, and as a result would be incompatible with the fundamental principles.
105.1 A1 Conduct that might discredit the insolvency profession includes conduct that a reasonable
and informed third party would be likely to conclude adversely affects the good reputation of
the profession.
105.1 A2 The concept of professional behaviour implies that it is appropriate for insolvency practitioners
to conduct themselves with courtesy and consideration towards all with whom they come into
contact when performing their work.
THE CONCEPTUAL FRAMEWORK
Introduction
110.1 The circumstances in which insolvency practitioners operate might create threats to
compliance with the fundamental principles. This section sets out requirements and
application material, including a conceptual framework, to assist insolvency practitioners in
complying with the fundamental principles and meeting their responsibility to act in the public
interest. Such requirements and application material accommodate the wide range of facts
and circumstances, including the various professional activities, interests and relationships,
that create threats to compliance with the fundamental principles. In addition, they deter
insolvency practitioners from concluding that a situation is permitted solely because that
situation is not specifically prohibited by the Code.
110.2 The conceptual framework specifies an approach for an insolvency practitioner to:
a) identify threats to compliance with the fundamental principles;
b) evaluate the threats identified; and
c) address the threats by eliminating or reducing them to an acceptable level.
Requirements and Application Material
General
R111.1 The insolvency practitioner shall apply the conceptual framework to identify, evaluate and
address threats to compliance with the fundamental principles set out in paragraphs 100 to
105.
R111.2 An insolvency practitioner shall take particular care to identify the existence of threats that
exist prior to or at the time of taking an insolvency appointment or which at that stage, it
might reasonably be expected could arise during the course of the insolvency appointment.
R111.3 In taking steps to identify any threats, an insolvency practitioner shall have regard to
relationships whereby the firm is held out as being part of a network.
R111.4 When dealing with an ethics issue, the insolvency practitioner shall consider the context in
which the issue has arisen or might arise. Where an insolvency practitioner is performing
professional activities pursuant to the insolvency practitioner’s relationship with the firm,
whether as a contractor, employee or owner, the individual shall comply with the provisions
of this Code.
R111.5 When applying the conceptual framework, the insolvency practitioner shall:
a) exercise professional judgement;
b) remain alert for new information and to changes in facts and circumstances; and
c) use the reasonable and informed third party test described in paragraph 113.1 A1.
Exercise of Professional Judgement
112.1 A1 Professional judgement involves the application of relevant training, professional knowledge,
skill and experience commensurate with the facts and circumstances, including the nature and
scope of the particular professional activities, and the interests and relationships involved. In
relation to undertaking professional activities, the exercise of professional judgement is
required when the insolvency practitioner applies the conceptual framework in order to make
informed decisions about the courses of actions available, and to determine whether such
decisions are appropriate in the circumstances.
112.1 A2 An understanding of known facts and circumstances is a prerequisite to the proper application
of the conceptual framework. Determining the actions necessary to obtain this understanding
and coming to a conclusion about whether the fundamental principles have been complied
with also require the exercise of professional judgement.
112.1 A3 In exercising professional judgement to obtain this understanding, the insolvency practitioner
might consider, among other matters, whether:
• There is reason to be concerned that potentially relevant information might be missing
from the facts and circumstances known to the insolvency practitioner.
• There is an inconsistency between the known facts and circumstances and the insolvency
practitioner’s expectations.
• The insolvency practitioner’s expertise and experience are sufficient to reach a conclusion.
• There is a need to consult with others with relevant expertise or experience.
• The information provides a reasonable basis on which to reach a conclusion.
• The insolvency practitioner’s own preconception or bias might be affecting the insolvency
practitioner’s exercise of professional judgement.
• There might be other reasonable conclusions that could be reached from the available
information.
Reasonable and Informed Third Party
113.1 A1 The reasonable and informed third party test is a consideration by the insolvency practitioner
about whether the same conclusions would likely be reached by another party. Such
consideration is made from the perspective of a reasonable and informed third party, who
weighs all the relevant facts and circumstances that the insolvency practitioner knows, or
could reasonably be expected to know, at the time the conclusions are made. The reasonable
and informed third party does not need to be an insolvency practitioner, but would possess
the relevant knowledge and experience to understand and evaluate the appropriateness of the
insolvency practitioner’s conclusions in an impartial manner.
Identifying Threats
R114.1 The insolvency practitioner shall identify threats to compliance with the fundamental
principles.
114.1 A1 An understanding of the facts and circumstances, including any professional activities,
interests and relationships that might compromise compliance with the fundamental
principles, is a prerequisite to the insolvency practitioner’s identification of threats to such
compliance. The existence of certain conditions, policies and procedures established by the
profession, legislation, regulation, the firm, or the employing organisation that can enhance
the insolvency practitioner acting ethically might also help identify threats to compliance with
the fundamental principles.
114.1 A2 Below there are examples of such conditions, policies and procedures which are also factors
that are relevant in evaluating the level of threats (see also Professional and personal
relationships):
a) leadership of the firm that stresses the importance of compliance with the fundamental
principles;
b) policies and procedures to implement and monitor quality control of engagements;
c) documented policies regarding the need to identify threats to compliance with the
fundamental principles, evaluate the significance of those threats, and apply safeguards to
eliminate or reduce the threats to an acceptable level;
d) documented internal policies and procedures requiring compliance with the fundamental
principles;
e) policies and procedures to identify the existence of any threats to compliance with the
fundamental principles before deciding whether to accept an insolvency appointment;
f) policies and procedures to identify interests or relationships between the firm or
individuals within the firm and third parties;
g) policies and procedures to prohibit individuals who are not members of the insolvency
team from inappropriately influencing the outcome of an insolvency appointment;
h) timely communication of a firm’s policies and procedures, including any changes to them,
to all individuals within the firm, and appropriate training and education on such policies
and procedures;
i) designating a member of senior management to be responsible for overseeing the
adequate functioning of the firm’s quality control system;
j) a disciplinary mechanism to promote compliance with policies and procedures;
k) published policies and procedures to encourage and empower individuals within the firm
to communicate to senior levels within the firm any issue relating to compliance with the
fundamental principles that concerns them.
114.1 A3 Threats to compliance with the fundamental principles might be created by a broad range of
facts and circumstances. It is not possible to define every situation that creates threats. In
addition, the nature of engagements and work assignments might differ and, consequently,
different types of threats might be created.
114.1 A4 Threats to compliance with the fundamental principles fall into one or more of the following
categories:
a) Self-interest threat – the threat that financial or other interests of the firm, an individual
within the firm or a close or immediate family member of an individual within the firm will
inappropriately influence the insolvency practitioner’s judgement or behaviour;
b) Self-review threat – the threat that the insolvency practitioner will not appropriately
evaluate the results of a previous judgement made or service performed by an individual
within the firm, on which the insolvency practitioner will rely when forming a judgement
as part of providing a current service;
c) Advocacy threat – the threat that an individual within the firm will promote a position or
opinion to the point that the insolvency practitioner’s objectivity is compromised;
d) Familiarity threat –the threat that due to a long or close relationship, an individual within
the firm will be too sympathetic or antagonistic to the interests of others or too accepting
of their work; and
e) Intimidation threat – the threat that an insolvency practitioner will be deterred from
acting objectively because of actual or perceived pressures, including attempts to exercise
undue influence over the insolvency practitioner.
114.1 A5 The following are examples of facts and circumstances within each category of threats that
might create threats for an insolvency practitioner:
a) Examples of circumstances that might create self-interest threats for an insolvency
practitioner include:
i. an individual within the firm having an interest in a creditor or potential creditor
with a claim which requires subjective adjudication, or having an interest in a party
to a transaction;
ii. an individual within the firm having a close business relationship with a creditor,
potential creditor or a party to a transaction;
iii. the insolvency practitioner discovering a significant error when evaluating the
results of a previous service performed by an individual within the firm;
iv. concern about the possibility of damaging a business relationship;
v. concern about future employment.
b) Examples of circumstances that might create self-review threats for an insolvency
practitioner include:
i. accepting an insolvency appointment in respect of an entity where an individual
within the firm has recently been employed by or seconded to that entity;
ii. an insolvency practitioner or the firm having previously carried out professional
work of any description, including sequential insolvency appointments, for an
entity.
c) Examples of circumstances that might create advocacy threats for an insolvency practitioner
include:
i. acting in an advisory capacity for a creditor of the insolvent entity;
ii. acting in an advisory capacity to an entity prior to its insolvency;
iii. acting as an advocate for a client of the firm in litigation or a dispute with the
insolvent entity.
d) Examples of circumstances that might create familiarity threats for an insolvency
practitioner include:
i. an individual within the firm or a close or immediate family member having a close
relationship with a director, officer, employee or any individual having a financial
interest in the insolvent entity;
ii. an individual within the firm or a close or immediate family member having a close
relationship with a potential purchaser of the insolvent entity’s assets and/or
business or any individual having a financial interest in the potential purchaser.
In this regard a close relationship includes both a close professional relationship and a close
personal relationship.
e) Examples of circumstances that might create intimidation threats for an insolvency
practitioner include:
i). an individual within the firm being threatened with dismissal or replacement;
ii). an individual within the firm being threatened with litigation, complaint or adverse
publicity;
iii). an individual within the firm being threatened with violence or other reprisal.
114.1 A6 and a threat might affect compliance with more than A circumstance might create more than one
threat, one fundamental principle.
Evaluating Threats
R115.1 When the insolvency practitioner identifies a threat to compliance with the fundamental
principles, the insolvency practitioner shall evaluate whether such a threat is at an
acceptable level.
Acceptable Level
115.1 A1 An acceptable level is a level at which an insolvency practitioner using the reasonable and
informed third party test would likely conclude that the insolvency practitioner complies with
the fundamental principles.
Factors Relevant in Evaluating the Level of Threats
115.2 A1 The consideration of qualitative as well as quantitative factors is relevant in the insolvency
practitioner’s evaluation of threats, as is the combined effect of multiple threats, if applicable.
115.2 A2 The existence of conditions, policies and procedures described in paragraph 114.1 A1 A2 might
also be factors that are relevant in evaluating the level of threats to compliance with
fundamental principles. Examples of such conditions, policies and procedures include:
a) corporate governance requirements.
b) educational, training and experience requirements for the profession.
c) professional standards.
d) effective complaint systems which enable the insolvency practitioner and the general
public to draw attention to unethical behaviour.
e) an explicitly stated duty to report breaches of ethics requirements.
f) professional or regulatory monitoring and disciplinary procedures.
g) external review by a legally empowered third party of the reports, returns,
communications or information produced by the insolvency practitioner.
Consideration of New Information or Changes in Facts and Circumstances
R115.3 If the insolvency practitioner becomes aware of new information or changes in facts and
circumstances that might impact whether a threat has been eliminated or reduced to an
acceptable level, the insolvency practitioner shall re-evaluate and address that threat
accordingly.
115.3 A1 Remaining alert throughout an insolvency appointment assists the insolvency practitioner in
determining whether new information has emerged or changes in facts and circumstances
have occurred that:
a) impact the level of a threat; or
b) affect the insolvency practitioner’s conclusions about whether safeguards applied
continue to be appropriate to address identified threats.
115.3 A2 If new information results in the identification of a new threat, the insolvency practitioner is
required to evaluate and, as appropriate, address this threat.
Addressing Threats
R116.1 If the insolvency practitioner determines that the identified threats to compliance with the
fundamental principles are not at an acceptable level, the insolvency practitioner shall
address the threats by eliminating them or reducing them to an acceptable level. The
insolvency practitioner shall do so by:
a) eliminating the circumstances, including interests or relationships, that are creating the
threats;
b) applying safeguards, where available and capable of being applied, to reduce the threats
to an acceptable level; or
c) declining or ending the insolvency appointment.
Actions to Eliminate Threats
116.1 A1 Depending on the facts and circumstances, a threat might be addressed by eliminating the
circumstance creating the threat. However, there are some situations in which threats can only
be addressed by declining or ending the insolvency appointment or resigning altogether from
the firm or the employing organisation. This is because the circumstances that created the
threats cannot be eliminated and safeguards are not capable of being applied to reduce the
threat to an acceptable level.
Safeguards
116.1 A2 Safeguards are actions, individually or in combination, that the insolvency practitioner takes
that effectively reduce threats to compliance with the fundamental principles to an acceptable
level.
116.1 A3 Safeguards vary depending on the facts and circumstances. Examples of actions that in certain
circumstances might be safeguards to address threats include:
• Assigning additional time and qualified personnel to required tasks when an insolvency
appointment has been accepted might address a self-interest threat.
• Having an appropriate reviewer who was not a member of the team review the work
performed or advise as necessary might address a self-review threat.
• Involving another insolvency practitioner to perform or re-perform part of the
engagement might address self-interest, self-review, advocacy, familiarity or intimidation
threats.
• Disclosing any referral fees or commission arrangements received for recommending
services or products might address a self-interest threat.
Safeguards specific to an insolvency appointment are considered later in the Code.
Consideration of Significant Judgements Made and Overall Conclusions Reached
R116.2 The insolvency practitioner shall form an overall conclusion about whether the actions that
the insolvency practitioner takes, or intends to take, to address the threats created will
eliminate those threats or reduce them to an acceptable level. In forming the overall
conclusion, the insolvency practitioner shall:
a) review any significant judgements made or conclusions reached; and
b) use the reasonable and informed third party test.
BREACHES OF THE CODE
R120.1 An insolvency practitioner who identifies a breach of any other provision of the Code shall
evaluate the significance of the breach and its impact on the insolvency practitioner’s ability
to comply with the fundamental principles. The insolvency practitioner shall also:
a) take whatever actions might be available, as soon as possible, to address the
consequences of the breach satisfactorily; and
b) determine whether to report the breach to the relevant parties.
120.1 A1 Relevant parties to whom such a breach might be reported include those who might have
been affected by it, or an authorising body.
RECORD KEEPING
130.1 A1 It will always be for the insolvency practitioner to justify their actions. An insolvency practitioner
will be expected to be able to demonstrate the steps that they took and the conclusions that
they reached in identifying, evaluating and responding to any threats, both leading up to and
during an insolvency appointment, by reference to written contemporaneous records.
R130.2 The insolvency practitioner shall document:
a) the facts.
b) any communications with, and parties with whom the matters were discussed.
c) the courses of action considered, the judgements made and the decisions that were
taken.
d) the safeguards applied to address the threats when applicable.
e) how the matter was addressed.
f) where relevant, why it was appropriate to accept or continue the insolvency
appointment.
130.2 A1 The records an insolvency practitioner maintains, in relation to the steps that they took and
the conclusions that they reached, are expected to be sufficient to enable a reasonable and
informed third party to reach a view on the appropriateness of their actions.
ETHICAL CONFLICT RESOLUTION
140.1 An insolvency practitioner might be required to resolve a conflict in complying with the
fundamental principles.
140.1 A1 When initiating either a formal or informal conflict resolution process, the following factors,
either individually or together with other factors, might be relevant to the resolution process:
a) relevant facts
b) ethical issues involved
c) fundamental principles related to the matter in question
d) established internal procedures
e) alternative courses of action.
140.1 A2 Having considered the relevant factors, it is necessary for an insolvency practitioner to
determine the appropriate course of action, weighing the consequences of each possible
course of action. If the matter remains unresolved, the insolvency practitioner might wish to
consult with other appropriate persons within the firm for help in obtaining resolution.
140.1 A3 Where a matter involves a conflict with, or within, an entity, an insolvency practitioner will
need to decide whether to consult with those charged with governance of the entity, such as
the board of directors or senior management team.
R140.2 The insolvency practitioner shall document the substance of the issue, the details of any
discussions held, and the decisions made concerning that issue.
140.2 A1 Reference should be made to Record Keeping (130).
140.2 A2 The insolvency practitioner is expected to be seen to act in such a way that threats to the
fundamental principles are adequately addressed. Therefore, it is important that the
insolvency practitioner considers disclosure, for example, to the court or to the creditors and
other interested parties of the existence of any threat, together with the safeguards identified
and applied.
140.2 A3 If a significant conflict cannot be resolved, an insolvency practitioner might consider obtaining
advice from their authorising body or from legal advisors. The insolvency practitioner generally
can obtain guidance on ethical issues without breaching the fundamental principle of
confidentiality if the matter is discussed with their authorising body on an anonymous basis or
with a legal advisor under the protection of legal privilege.
R140.3 If, after exhausting all relevant possibilities, the ethical conflict remains unresolved, an
insolvency practitioner shall, where possible, refuse to remain associated with the matter
creating the conflict. The insolvency practitioner shall determine whether, in the
circumstances, it is appropriate to withdraw from the insolvency appointment, or to resign
altogether from the firm or the employing organisation.
SPECIFIC APPLICATION OF THE CODE
Introduction
200.1 This part of the Code describes how the framework applies in certain situations to insolvency
practitioners. This part does not describe all of the circumstances and relationships that could
be encountered by an insolvency practitioner that create or could create threats to compliance
with the fundamental principles. Therefore, the insolvency practitioner is encouraged to be
alert for such circumstances and relationships.
Requirements and application material
R200.2 An insolvency practitioner shall not knowingly engage in any activity that impairs or might
impair integrity, objectivity or the good reputation of the profession and as a result would be
incompatible with the fundamental principles.
R200.3 An insolvency practitioner shall exercise judgement to determine how best to deal with
threats that are not at an acceptable level, whether by applying safeguards to eliminate the
threat or reduce it to an acceptable level or, where possible, by refusing to remain
associated with the matter creating the conflict.
200.3 A1 In exercising this judgement, an insolvency practitioner is expected to consider whether a
reasonable and informed third party, weighing all the specific facts and circumstances
available to the insolvency practitioner at that time, would be likely to conclude that the
threats would be eliminated or reduced to an acceptable level by the application of
safeguards, such that compliance with the fundamental principles is not compromised.
200.3 A2 In the work environment, safeguards will vary depending on the facts and circumstances. Work
environment safeguards comprise safeguards existing across the firm and safeguards specific
to an insolvency appointment.
200.3 A3 Examples of actions that might be safeguards specific to an insolvency appointment include:
a) consulting an independent third party, such as an authorising body or another insolvency
practitioner;
b) obtaining the views of a committee of creditors;
c) disclosing ethical issues to creditors and other interested parties;
d) involving another insolvency practitioner to perform or re-perform part of the engagement;
e) obtaining legal advice from a solicitor, barrister or advocate with appropriate experience and
expertise.
General conduct
R200.4 Where circumstances are dealt with by statute or secondary legislation, an insolvency
practitioner shall comply with such provisions.
200.5 The practice of insolvency is principally governed by statute and secondary legislation and in
many cases is subject ultimately to the control of the court.
R200.6 An insolvency practitioner shall also comply with any relevant judicial authority relating to
their conduct and any directions given by the court.
R200.7 An insolvency practitioner shall act in a manner appropriate to their position (as an officer of
the court where applicable) and in accordance with any quasi-judicial, fiduciary or other
duties that the insolvency practitioner might be under.
R200.8 An insolvency practitioner shall comply with standards or regulations issued by their
authorising body.
R200.9 An insolvency practitioner shall also have regard to guidance relevant to the conduct of an
insolvency appointment or work that might lead to an insolvency appointment which is
issued by their authorising body, the Insolvency Service and other appropriate organisations.
INSOLVENCY APPOINTMENTS
Introduction
210.1 insolvency practitioners are required to comply with the fundamental principles and apply the
conceptual framework to identify, evaluate and address threats.
210.2 Acceptance of an insolvency appointment might create a threat to compliance with one or
more of the fundamental principles. This section sets out specific requirements and application
material relevant to applying the conceptual framework in such circumstances.
Requirements and application material
R210.3 Before agreeing to accept any insolvency appointment (including a joint appointment), an
insolvency practitioner shall determine whether acceptance would create any threats to
compliance with the fundamental principles.
210.3 A1 Of particular importance are threats to the fundamental principle of objectivity created by
conflicts of interest. These are considered in more detail in the section on conflicts of interest
(paragraphs 310 to 311.2 A4).
210.3 A2 When seeking to identify threats to the fundamental principles, an insolvency practitioner will
need to identify and evaluate any professional or personal relationships that threaten
compliance with the fundamental principles (see Acting with sufficient expertise, 300 below).
The insolvency practitioner will then need to determine the appropriate response to any
threats arising from any such relationships, including the identifying and applying appropriate
safeguards.
R210.4 If the insolvency practitioner determines that the identified threats to compliance with the
fundamental principles are not at an acceptable level, the insolvency practitioner shall
address the threats by eliminating them or reducing them to an acceptable level. The
insolvency practitioner shall do so by:
a) Eliminating the circumstances, including interests or relationships, that are creating the
threats; or
b) Applying safeguards, where available and capable of being applied, to reduce the threats
to an acceptable level.
R210.5 An insolvency practitioner shall not accept an insolvency appointment where a threat to the
fundamental principles has been identified unless the threat is eliminated or reduced to an
acceptable level.
210.5 A1 Factors that are relevant in evaluating the level of a threat include measures that prevent
unauthorised disclosure of confidential information These measures include:
• The existence of separate practice areas for specialty functions within the firm, which
might act as a barrier to the passing of confidential client information between practice
areas.
• Policies and procedures to limit access to client files.
• Confidentiality agreements signed by personnel and partners of the firm.
• Separation of confidential information physically and electronically.
• Specific and dedicated training and communication.
210.5 A2 Examples of actions that might be safeguards include:
a) involving another insolvency practitioner, either from within or out with the firm as
appropriate to the circumstances, to review the work done, perform or re-perform part of
the work or otherwise advise as necessary. This could include another insolvency
practitioner taking a joint appointment;
b) changing members of the insolvency team or the use of separate staff;
c) terminating the financial or business relationship that gives rise to the threat;
d) seeking directions from the court.
210.5 A3 It is important that, prior to the insolvency appointment, the insolvency practitioner considers
disclosure, to the court or to the creditors on whose behalf the insolvency practitioner would
be appointed to act, of the existence of any threat, together with the safeguards identified and
applied, and that no objection is made to the insolvency practitioner being appointed.
210.5 A4 Where an insolvency practitioner is specifically precluded by this Code from accepting an
insolvency appointment as an individual, a joint appointment is not an appropriate safeguard
and would not make accepting the insolvency appointment appropriate.
210.5 A5 An insolvency practitioner will need to exercise professional judgement to determine the
appropriate action when threats have been identified. In exercising their judgement, an
insolvency practitioner is expected to take into account whether a reasonable and informed
third party, weighing all the specific facts and circumstances available to the insolvency
practitioner at the time, would be likely to conclude that the threats would be eliminated or
reduced to an acceptable level, such that compliance with the fundamental principles is not
compromised.
R210.6 An insolvency practitioner might encounter situations in which the threats cannot be
eliminated and safeguards are not capable of being applied to reduce the threats to an
acceptable level. Where this is the case, the insolvency practitioner shall not accept the
insolvency appointment.
R210.7 Following the acceptance of an insolvency appointment, the insolvency practitioner shall
keep under review any identified threats, and the insolvency practitioner shall be mindful
that other threats to the fundamental principles could arise.
210.7 A1 Remaining alert throughout the insolvency appointment will assist the insolvency practitioner
in determining whether new information has emerged or changes in facts and circumstances
have occurred that:
a) impact the level of a threat; or
b) affect the insolvency practitioner’s conclusions about whether safeguards applied
continue to be appropriate to address identified threats.
Mergers
210.8 A1 If firms merge, after the merger, they are to be treated as one firm for the purposes of
assessing threats to the fundamental principles.
R210.9 At the time of the merger, the insolvency practitioner shall review existing insolvency
appointments and identify any threats to the fundamental principles.
210.9 A1 Principals and employees of the merged firm will become subject to common ethical
constraints in relation to accepting new insolvency appointments to clients of either of the
former firms. However existing insolvency appointments which are rendered in apparent
breach of the Code by the merger need not be judged to be so automatically, provided that a
considered review of the situation by the firm discloses no obvious and immediate ethical
conflict.
R210.10 Where an individual within the firm has, in any former capacity, undertaken work upon the
affairs of an entity that is incompatible with an insolvency appointment of the new firm, the
individual shall not work or be employed on that assignment.
ACTING WITH SUFFICIENT EXPERTISE
Introduction
300.1 insolvency practitioners are required to comply with the fundamental principles and apply the
conceptual framework to identify, evaluate and address threats.
300.2 The fundamental principle of professional competence and due care requires that an
insolvency practitioner only accepts an insolvency appointment when the insolvency
practitioner has or can acquire sufficient expertise. For example, a self-interest threat to the
fundamental principle of professional competence and due care is created if the insolvency
practitioner or the insolvency team does not possess or cannot acquire the competencies
necessary to carry out the insolvency appointment. Acquiring in this context includes obtaining
the expertise from elsewhere by employing experts or additional resources. This section sets
out specific requirements and application material relevant to applying the conceptual
framework in such circumstances.
Requirements and Application Material
General
R300.3 An insolvency practitioner shall not intentionally mislead an employing organisation as to
the level of expertise or experience possessed.
300.3 A1 The principle of professional competence and due care requires that an insolvency practitioner
only undertake significant tasks for which the insolvency practitioner has, or can obtain,
sufficient training or experience.
300.3 A2 A self-interest threat to compliance with the principle of professional competence and due
care might be created if an insolvency practitioner has:
• insufficient time for performing or completing the relevant duties;
• incomplete, restricted or otherwise inadequate information for performing the duties;
• insufficient experience, training and/or education;
• inadequate resources for the performance of the duties.
300.3 A3 Factors that are relevant in evaluating the level of such a threat include:
• the extent to which the insolvency practitioner is working with others;
• the relative seniority of the insolvency practitioner in the firm;
• the level of supervision and review applied to the work.
300.3 A4 Factors to be considered in evaluating expertise include:
a) an appropriate knowledge and understanding of the entity, its owners, managers and those
responsible for its governance and business activities;
b) an appropriate understanding of the nature of the entity’s business, the complexity of its
operations, the specific requirements of the engagement and the purpose, nature and scope
of the work to be performed;
c) knowledge of relevant industries and subject matters;
d) possessing or obtaining experience of relevant regulatory and reporting requirements;
e) availability of sufficient staff with the necessary competencies;
f) access to experts where necessary;
g) complying with quality control policies and procedures designed to provide reasonable
assurance that specific engagements are accepted only when they can be performed
competently.
300.3 A5 Maintaining and acquiring professional competence requires a continuing awareness and
understanding of relevant technical and professional developments.
300.3 A6 Examples of actions that might be safeguards to address such threats include:
• obtaining assistance or training from someone with the necessary expertise.
• ensuring that there is adequate time available for performing the relevant duties.
R300.4 If a threat to compliance with the principle of professional competence and due care cannot
be addressed, an insolvency practitioner shall determine whether to decline to perform the
duties in question or accept or continue the insolvency appointment. If the insolvency
practitioner determines that declining to accept the insolvency appointment is appropriate,
the insolvency practitioner shall communicate the reasons.
R300.5 The insolvency practitioner shall keep under review the expertise required throughout the
insolvency appointment
CONFLICTS OF INTEREST AND PROFESSIONAL AND PERSONAL RELATIONSHIPS
Introduction
310.1 insolvency practitioners are required to comply with the fundamental principles and apply the
conceptual framework to identify, evaluate and address threats.
310.2 A conflict of interest creates threats to compliance with the principle of objectivity and might
create threats to compliance with the other fundamental principles.
310.3 Where a conflict of interest arises, the preservation of confidentiality will be of paramount
importance.
310.4 This section sets out specific requirements and application material relevant to applying the
conceptual framework to conflicts of interest.
Requirements and Application Material
General
R311.1 An insolvency practitioner shall not allow a conflict of interest to compromise professional
or business judgement.
R311.2 An insolvency practitioner might encounter circumstances where a threat to the principle of
objectivity or other fundamental principles cannot be eliminated and safeguards cannot be
applied to reduce the threat to an acceptable level. Where this is the case the insolvency
practitioner shall not accept the insolvency appointment.
311.2 A1 Examples of circumstances that might create a conflict of interest include where a significant
relationship has existed with the entity or someone connected with the entity, or where an
insolvency practitioner:
• has to deal with conflicting or competing interests between entitles over whom they, or
another insolvency practitioner in their firm, is appointed.
• or another insolvency practitioner in their firm has previously acted as an insolvency office
holder to a company with a common director, or common directors. Where the insolvency
practitioner has been appointed officeholder to a number of insolvent companies with the
same director or directors, there will be an increased risk of a conflict of interest arising.
• has, or others in their firm have, previously carried out one or more assignments for an
entity and / or its wider group and they are appointed as an insolvency office holder to the
entity or its connected entities.
• has, or others in their firm have, previously carried out one or more assignments for an
entity’s charge holders or stakeholders and the insolvency practitioner is appointed as an
insolvency office holder to the entity or its connected entities.
• is appointed administrator by a floating charge holder, under a recent charge, and the
assets are sold to a purchaser and the purchaser is connected to the floating charge
holder.
• is appointed to act as supervisor of a debtor’s IVA or trustee in a debtor’s bankruptcy or
sequestration, and has, or another insolvency practitioner in the same firm, has been
appointed as an insolvency officeholder to a company of which the debtor is a director, or
was a director in the past three years.
• is appointed to deal with an insolvent individual’s affairs, and the insolvency practitioner,
or another individual in their firm, was involved in bringing about the individual’s
insolvency. There could be an increased risk of a conflict of interest where the insolvency
practitioner has a claim for outstanding costs.
311.2 A2 There will be an increased risk of a conflict arising where an insolvency practitioner or their
firm has carried out a number of previous assignments for an entity, its group or its charge
holders or stakeholders. There will also be an increased risk if the previous assignments took
place over an extended period of time. The level of risk will also depend on the services that
were provided and the nature of the work carried out.
311.2 A3 There will be an increased risk where an insolvency practitioner has, or others in their firm
have, carried out one or more pre-appointment engagements for the entity, and the
insolvency practitioner is appointed as an insolvency officeholder, and they, or another
insolvency practitioner in their firm is subsequently appointed officeholder in a further
insolvency process.
311.2 A4 The fact that an insolvency practitioner, or their firm, might not have been formally engaged to
carry out an assignment, or might not have been paid for their work, does not negate the
possibility of a conflict of interest arising.
Professional and personal relationships
Introduction
312.1 The environment in which insolvency practitioners work and the relationships formed in their
professional and personal lives can lead to threats to the fundamental principle of objectivity.
Requirements and Application Material
R312.2 The principle of objectivity might be threatened if any individual within the firm, the close or
immediate family of an individual within the firm or the firm itself, has or has had a
professional or personal relationship which relates to the insolvency appointment being
considered.
312.2 A1 Relationships could include (but are not restricted to) relationships with:
a) the entity;
b) senior management or any director or shadow director or former director or shadow
director of the entity;
c) shareholders or Persons of Significant Control of the entity;
d) any Principal or employee of the entity;
e) business partners of the entity;
f) companies or entities controlled by the entity;
g) companies which are under common control;
h) potential purchasers
i) creditors
j) funders, including shareholders, private equity houses and debenture holders of the entity;
k) debtors of the entity;
l) close or immediate family of the entity (if an individual) or its officers (if a corporate body);
m) others with commercial relationships with the firm or personal relationships with an
individual within the firm.
312.2 A2 The examples above are not exhaustive, and the substance of any relationship should be
considered.
R312.3 An insolvency practitioner shall ensure that the firm has policies and procedures to identify
relationships between individuals within the firm and third parties in a way that is
proportionate and reasonable in relation to the insolvency appointment being considered.
R312.4 Before accepting an insolvency appointment, an insolvency practitioner shall take
reasonable steps to identify circumstances (including any relationships) that might create a
conflict of interest, and therefore a threat to compliance with one or more of the
fundamental principles. Such steps shall include identifying:
a) the nature of the relevant interests and relationships between all stakeholders; and
b) the nature, extent and timing of any prior work for the entity or connected entities and
its implication for all stakeholders.
312.4 A1 An effective conflict identification process assists an insolvency practitioner when taking
reasonable steps to identify interests and relationships that might create an actual or potential
conflict of interest, both before determining whether to accept an insolvency appointment and
throughout the appointment. Such a process includes considering matters identified by
external parties, for example directors of insolvent entities or insolvent individuals. The earlier
an actual or potential conflict of interest is identified, the greater the likelihood of the
accountant being able to address threats created by the conflict of interest.
312.4 A2 An effective process to identify actual or potential conflicts of interest will take into account
factors such as:
• the nature of any previous work carried out for the entity or connected entities
• the nature of the insolvency appointment
• the size of the firm
• the size and nature of the client base
• the structure of the firm, for example, the number and geographic location of offices.
R312.5 Where a professional or personal relationship of the type described in paragraph 312.2 A1
has been identified the insolvency practitioner shall evaluate the impact of the relationship
in the context of the insolvency appointment being sought or considered.
312.5 A1 Issues to consider in evaluating whether a relationship creates a threat to the fundamental
principles include the following:
a) The nature of the previous duties undertaken by a firm during an earlier relationship with
the entity.
b) The impact of the work conducted by the firm on the financial state and/or the financial
stability of the entity in respect of which the insolvency appointment is being considered.
c) Whether the fees for the work or the costs incurred is or was significant to the insolvency
practitioner, the insolvency practitioner’s department or the firm itself.
d) Whether the fee received for the work or the cost of the work was substantial.
e) How recently any professional work was carried out. It is likely that greater threats will
arise (or could be seen to arise) where work has been carried out within the previous three
years. However, there might still be instances where, in respect of non-audit work, any
threat is at an acceptable level. Conversely, there might be situations whereby the nature
of the work carried out was such that a considerably longer period will need to have
elapsed before any threat can be reduced to an acceptable level.
f) Whether the insolvency appointment being considered involves consideration of any work
previously undertaken by the firm for that entity.
g) The nature of any personal relationship and the proximity of the insolvency practitioner to
the individual with whom the relationship exists and, where appropriate, the proximity of
that individual to the entity in relation to which the insolvency appointment relates.
h) Whether any reporting obligations will arise in respect of the relevant individual with
whom the relationship exists (e.g. an obligation to report on the conduct of directors and
shadow directors of a company to which the insolvency appointment relates).
i) The nature of any previous duties undertaken by an individual within the firm during any
earlier relationship with the entity.
j) The extent of the insolvency team’s familiarity with the individuals connected with the
entity.
312.5 A2 When evaluating the nature of any previous work done, an insolvency practitioner is expected
to take into account any work done, even if it was not subject to a formal engagement and / or
did not generate a fee for the firm.
R312.6 Having identified and evaluated a relationship that might create a threat to the fundamental
principles, the insolvency practitioner shall consider their response including possible actions
to reduce the threat to an acceptable level.
312.6 A1 Examples of actions which might be safeguards to reduce the level of threat created by a
professional or personal relationship to an acceptable level are considered in paragraph 210.5
A2. Examples of other safeguards include:
a) terminating (where possible) the financial or business relationship giving rise to the threat.
b) disclosure of the relationship and any financial benefit received by the firm (whether
directly or indirectly) to the entity or to those on whose behalf the insolvency practitioner
would be appointed to act.
312.6 A2 While an insolvency practitioner might not be able to withdraw from the team, the threat
created by another individual’s professional or personal relationship could be reduced to an
acceptable level by that individual withdrawing from the insolvency team.
R 312.7 An insolvency practitioner could encounter situations in which no action can be taken to
eliminate a threat arising from a professional or personal relationship, or to reduce it to an
acceptable level. In such situations, the relationship in question will constitute a significant
professional relationship or a significant personal relationship. Where this is case the
insolvency practitioner shall not accept the insolvency appointment.
R312.8 An insolvency practitioner shall always consider the perception of others when deciding
whether to accept an insolvency appointment.
312.8 A1 While an insolvency practitioner might regard a relationship as not being significant to the
insolvency appointment, the perception of others could differ and this might in some
circumstances be sufficient to make the relationship significant. In considering perception, this
needs to be considered on the basis of a reasonable and informed third party, weighing up all
the specific facts and circumstances available to the insolvency practitioner at that time.
R312.9 The insolvency practitioner shall document:
a) the facts.
b) any communications with, and parties with whom the matters were discussed.
c) the courses of action considered, the judgements made and the decisions that were
taken.
d) the safeguards applied to address the threats when applicable.
e) how the matter was addressed.
f) where relevant, why it was appropriate to accept or continue the insolvency
appointment.
R312.10 The records an insolvency practitioner maintains, in relation to the steps that they took and
the conclusions that they reached, shall be sufficient to enable a reasonable and informed
third party to reach a view on the appropriateness of their actions.
Changes in Circumstances
R313.1 An insolvency practitioner shall remain alert to changes over time in the nature of services,
interests and relationships that might create a conflict of interest while acting as an
insolvency office holder.
313.1 A1 The nature of interests and relationships might change during the appointment. This is
particularly true when an insolvency practitioner is appointed in a situation that might become
adversarial, even though the stakeholders might not initially be involved in a dispute. It could
also be the case where a debt is sold or transferred during the appointment, where an
insolvency practitioner is appointed as a replacement officeholder, where a liquidator in a
members’ voluntary liquidation is converting the winding up to a creditors’ voluntary
liquidation or where a creditor goes into an insolvency process.
Network firms
R314.1 If the firm is a member of a network, an insolvency practitioner shall consider conflicts of
interest that the insolvency practitioner has reason to believe might exist or arise due to
interests and relationships of a network firm.
314.1 A1 Factors to consider when identifying interests and relationships involving a network firm include:
• the nature of the professional services provided
• the clients served by the network
• the geographic locations of all relevant parties
Threats Created by Conflicts of Interest
315.1 In general, the more direct the connection between the professional service and the matter on
which the parties’ interests conflict, the more likely the level of the threat is not at an
acceptable level.
315.2 Factors that are relevant in evaluating the level of a threat created by a conflict of interest
include measures that prevent unauthorized disclosure of confidential information when
dealing with insolvency appointments for two or more insolvent entities whose interests with
respect to that matter are in conflict. These measures include:
• the existence of separate practice areas for specialty functions within the firm, which
might act as a barrier to the passing of confidential client information between practice
areas;
• policies and procedures to limit access to case files;
• confidentiality agreements signed by personnel and partners of the firm;
• separation of confidential information physically and electronically;
• specific and dedicated training and communication.
315.3 Examples of actions that might be safeguards to address threats created by a conflict of
interest include:
• Having separate engagement teams who are provided with clear policies and procedures
on maintaining confidentiality.
• Having an appropriate reviewer, who is not involved in providing the service or otherwise
affected by the conflict, review the work performed to assess whether the key judgements
and conclusions are appropriate.
R315.4 An insolvency practitioner shall exercise professional judgement to determine whether the
nature and significance of a conflict of interest are such that specific disclosure and explicit
consent is necessary when addressing the threat created by the conflict of interest.
315.4 A1 Factors to consider when determining whether specific disclosure and explicit consent are
necessary include:
• the circumstances creating the conflict of interest
• the parties that might be affected
• The nature of the issues that might arise
• The potential for the particular matter to develop in an unexpected manner.
315.4 A2 Disclosure and consent might take different forms, for example:
• disclosure to the court on making an application to court for an administration or any
other order
• obtaining consent from a creditors’ committee
• obtaining consent from a secured lender
• disclosure to creditors
315.4 A3 It is generally expected that any disclosure will include the circumstances of the particular conflict
and how any threats created were addressed.
315.4 A4 More information on accepting insolvency appointments is set out in insolvency appointments
(see paragraph 210).
Confidentiality
General
R316.1 An insolvency practitioner shall remain alert to the principle of confidentiality, including
when making disclosures or sharing information within the firm or network and seeking
guidance from third parties.
316.1 A1 Paragraphs 104.1 to 104.4 set out requirements and application material relevant to situations
that might create a threat to compliance with the principle of confidentiality.
SPECIALIST ADVICE AND SERVICES
Introduction
320.1 insolvency practitioners are required to comply with the fundamental principles and apply the
conceptual framework to identify, evaluate and address threats.
320.2 If an insolvency practitioner obtains specialist advice or services from others, this might create
a self-interest threat to compliance with one or more of the fundamental principles. This
section sets out specific application material relevant to applying the conceptual framework in
such circumstances.
Requirements and Application Material
R320.3 When an insolvency practitioner intends to rely on the advice or work of another, from
within the firm or by a third party, the insolvency practitioner shall evaluate whether such
advice or work is warranted.
R320.4 Any advice or work contracted shall reflect best value and service for the work undertaken.
320.4 A Factors that are relevant in evaluating best value and service are:
• the cost of the service;
• the expertise and experience of the service provider;
• that the provider holds appropriate regulatory authorisations;
• the professional and ethical standards applicable to the service provider.
R320.5 The insolvency practitioner shall review arrangements periodically to ensure that best value
and service continue to be obtained in relation to each insolvency appointment.
R320.6 The insolvency practitioner shall document the reasons for choosing a particular service
provider.
320.6 A1 Threats to the fundamental principles (for example familiarity threats and self-interest threats)
can arise if services are provided by a regular source within the firm or by a party with whom
the insolvency practitioner, firm, or an individual within the firm, has a business or personal
relationship.
320.6 A2 Business or personal relationships might include the following:
• an immediate family member e.g. spouse, parent, child, sibling etc.
• a business partner;
• any company or business in which there are common shareholdings with the firm, or which
have the same beneficial owner(s); or one of the companies or business controls or owns
the other.
320.6 A3 The examples above are not exhaustive, and the substance of the relationship between the
insolvency practitioner, the firm or an individual within the firm and the provider of the service
should be considered.
320.6 A4 When taking steps to assess the nature of any such relationship, the insolvency practitioner
should have regard to conflicts of interest and professional and personal relationships.
320.6 A5 While the insolvency practitioner might regard a relationship as not being a cause for concern,
the perception of others could differ. In considering perception, it is expected that the
insolvency practitioner considers this on the basis of a reasonable and informed third party,
weighing up all the specific facts and circumstances available to the insolvency practitioner at
that time.
320.6 A6 Examples of actions that might be safeguards to address such threats include:
a) applying clear guidelines and policies within the firm on such relationships
b) disclosure of the relevant relationships and the process undertaken to evaluate best value
and service to the general body of creditors or the creditors’ committee if one exists
c) the benefit of negotiated commercial terms such as volume or settlement discounts being
received in full by the insolvent estate.
320.6 A7 Where the insolvency practitioner does not control decisions about the choice of the provider
of specialist advice or service, to be able to comply with the requirements in this part the
insolvency practitioner will need to obtain sufficient information to establish the nature of the
relationship with the provider. Reference should also be made to – The insolvency practitioner
as an employee (see paragraph 380).
AGENCIES AND REFERRALS
Introduction
330.1 insolvency practitioners are required to comply with the fundamental principles and apply the
conceptual framework to identify, evaluate and address threats.
330.2 If an insolvency practitioner receives referred work, refers work to others, or establishes an
agency arrangement, this might create a self-interest threat to compliance with one or more of
the fundamental principles. A referral could be a formal request made in the course of a
professional relationship, for advice on the selection of a potential professional adviser. A
referral might also be an informal request, including where there is no existing relationship
between the insolvency practitioner and the enquirer. This section sets out specific application
material relevant to applying the conceptual framework in such circumstances.
330.3 Attention is also drawn to the legislative provisions regarding the use of personal data.
330.4 The requirements in respect of referral fees and commissions are detailed in Referral fees and
commission (see paragraph 340).
Requirements and Application Material
R330.5 The insolvency practitioner shall consider the fitness for purpose of the third party to whom
a referral is proposed or an agency arrangement is being considered, to address the needs of
the recipient of the service.
330.5 A1 insolvency practitioners are expected to consider any factors they are aware of that would
indicate the proposed third party is not fit for purpose in terms of the potential engagement.
The insolvency practitioner needs to take into account what a reasonable person might expect
an insolvency practitioner to know.
330.5 A2 Examples of actions that might be safeguards to address threats created by any referral and
agency arrangements include:
a) applying clear guidelines and policies within the firm on referrals and agency arrangements
b) disclosure of the process undertaken to evaluate best value and service and any relevant
relationships to the general body of creditors or the creditors’ committee if one exists.
330.5 A3 In making that consideration of fitness for purpose, the insolvency practitioner is expected to
take account of the professional or regulatory status of the third party.
R330.6 Insolvency practitioners shall not, because of the self-interest threat, enter into any financial
arrangements with another supplier either personally or through their firm which would
prejudice the objectivity of themselves or their firm.
R330.7 Before accepting or continuing an agency with another supplier, insolvency practitioners
shall satisfy themselves that their ability to discharge their professional obligations are not
compromised.
330.7 A1 When referring work or establishing an agency, insolvency practitioners have a responsibility
to ascertain that a referral is conducted in accordance with this Code because insolvency
practitioners cannot do, or be seen to do, through others what they cannot not do themselves.
R330.8 When insolvency practitioners or their firm are considering the establishment of an agency,
the terms of the agency contract (actual or implied) shall not require exclusive referral
regardless of suitability. This would make important safeguards inoperable.
R330.9 An insolvency practitioner shall not make a referral to a third party, even with a disclaimer, if
they know of a better alternative.
R330.10 The insolvency practitioner shall document the reasons for establishing an agency with
another supplier or recommending a particular provider.
R330.11 When permitting the introduction of services or products, an insolvency practitioner shall
address the threats to compliance with the fundamental principles.
330.11 A1 When permitting the introduction of services or products to those who are the subject of an
insolvency appointment, factors that are relevant to such introductions include:
• The level of knowledge and expertise of those who are subject to, or have a financial
interest in, the insolvency appointment or prospective insolvency appointment.
• The ability of those who are subject to, or have a financial interest in, the insolvency
appointment or prospective insolvency appointment, to question the information
provided by or with the consent of the insolvency practitioner.
• Information provided to those who are subject to, or have had financial interest in, the
insolvency appointment or prospective insolvency appointment to enable an informed
decision to be made.
• Whether consent has been obtained from the individual subject to the insolvency
appointment, or prospective insolvency appointment, for their personal information to be
shared with the provider of the service or product.
• The cost of the service.
• The financial impact on those who are subject to, or have a financial interest in, the
insolvency appointment or prospective insolvency appointment.
• The regulatory status of the provider of the service or product.
• Disclosing the nature of the referral or arrangement to those who are subject to, or have a
financial interest in, the insolvency appointment or prospective insolvency appointment.
330.11 A2 Being transparent about any referral or agency arrangements and setting out in writing to the
individuals concerned the nature of the arrangement might be an appropriate safeguard. (see
paragraph 330.5 A2 above)
330.11 A3 When communicating information about any referral or agency arrangements the insolvency
practitioner should provide the following information:
• the advantages and disadvantages of the service or product being provided;
• that similar services or products could be available from other providers at a different cost,
• any direct or indirect benefit that the insolvency practitioner or the firm might receive if a
service or product is taken up;
• that seeking independent advice should be considered.
R330.12 If the insolvency practitioner or the firm has a relationship with the third party, for example
a family connection or an automatic referral arrangement, there are clear self-interest or
familiarity threats and the connection shall be disclosed. The disclosure shall include any
potential benefit, whether direct or indirect, they, or others will receive.
330.12 A1 In addition to disclosure required by R330.12, the insolvency practitioner should consider
including the additional information listed in 330.11 A3.
330.12 A2 This is particularly important where an insolvency practitioner is considering recommending
the products of another supplier with which there is an agency agreement or referral
arrangement and the insolvency practitioner, firm, or an individual within the firm, has a
business or personal relationship with the provider of the service.
330.12 A3 Business or personal relationships might include the following:
• an immediate family member e.g. spouse, parent, child, sibling etc.
• a business partner;
• any company or business in which there are common shareholdings with the firm, or which
have the same beneficial owner(s); or one of the companies or business controls or owns
the other.
330.12 A4 The examples above are not exhaustive, and the substance of the relationship between the
insolvency practitioner, the firm or an individual within the firm and the provider of the service
should be considered.
330.12 A5 When taking steps to assess the nature of any such relationship, the insolvency practitioner
should have regard to conflicts of interest and professional and personal relationships.
330.12 A6 While the insolvency practitioner might regard a relationship as not being a cause for concern,
the perception of others could differ. It is necessary to consider perception on the basis of a
reasonable and informed third party, weighing up all the specific facts and circumstances
available to the insolvency practitioner at that time.
330.12 A7 The requirement to disclose includes situations where in substance there is a one-to-one
relationship between the insolvency practitioner and the third party (for example, the
insolvency practitioner is the only insolvency practitioner in the area and the third party is the
only solicitor), as this implies automatic referral.
R330.13 An insolvency practitioner shall not in any circumstances conduct their firm in such a manner
as to give the impression that the insolvency practitioner is a principal rather than an agent.
330.13 A1 This includes considering signs on premises, websites and any other outward signs or literature
used.
330.13 A2 Where the insolvency practitioner does not control decisions about referrals and agencies
within the firm, to comply with the requirements in this part the insolvency practitioner will
need to obtain sufficient information about any arrangements. Reference should also be made
to – the insolvency practitioner as an employee (see paragraph 380).
REFERRAL FEES AND COMMISSIONS 1
Introduction
340.1 insolvency practitioners are required to comply with the fundamental principles and apply the
conceptual framework to identify, evaluate and address threats.
340.2 Paying or receiving referral fees and commissions might create a self-interest threat to
compliance with one or more of the fundamental principles. This section sets out specific
application material relevant to applying the conceptual framework in such circumstances.
Requirements and Application Material
340.3 A self-interest threat to compliance with the principles of objectivity and professional
competence and due care is created if an insolvency practitioner, the firm or an associate
offers or pays a referral fee or commission.
R340.4 An insolvency practitioner, the firm or an associate shall not make or offer to make any
payment or commission for the introduction of an insolvency appointment.
340.4 A1 Remuneration arising from an employer/employee relationship would not normally be
included within the scope of payments referred to in R340.4 above.
340.4 A2 A self-interest threat to compliance with the principles of objectivity and professional
competence and due care is created if an insolvency practitioner, the firm or an associate
receives a referral fee or commission.
R340.5 Where an engagement might lead to an insolvency appointment, insolvency practitioners
shall not accept referral fees or commissions unless they take action to reduce the threats
created by such fees or commissions to an acceptable level 2.
340.5 A1 Examples of actions that might be safeguards to address such threats include:
a) disclosure in advance of any arrangements to the appointing body, creditors or any other
relevant stakeholders,
b) obtaining the views of the creditors committee.
R340.6 If after the receipt of any such payments by the insolvency practitioner, the firm or an
associate, the insolvency practitioner accepts an insolvency appointment, the amount and
any source of any fee or commission received shall be disclosed to creditors.
R340.7 During an insolvency appointment, referral fees or commissions shall not be accepted by the
insolvency practitioner, the firm or an associate unless they are paid into the insolvent
estate. Any such payments shall be disclosed to creditors.
R340.8 Where the insolvency practitioner or firm obtains preferential contractual terms from
suppliers of goods and services obtained for an insolvency appointment, for example volume
or settlement discounts, the benefit shall be received in full by the insolvent estate.
1 As per Section 642 Companies Act 2014, referral fees and commission are strictly prohibited in the
Republic of Ireland.
2 Insolvency Practitioners operating in the Republic of Ireland or operating in respect of an Irish Company
should not accept referral fees or commission under any circumstances (see footnote 1 above).
340.8 A1 The term ‘associate’ of an insolvency practitioner or the firm includes the following:
• an immediate family member e.g. spouse, parent, child, sibling etc.
• a business partner;
• any company or business in which there are common shareholdings with the firm, or which
have the same beneficial owner(s); or one of the companies or business controls or owns
the other.
340.8 A2 The examples of associates are not exhaustive, and the substance of the association between
the insolvency practitioner and/or the firm and the recipient or payor of any referral fee or
commission should be considered.
340.8 A3 When taking steps to assess the nature of any such association, the insolvency practitioner is
expected to have regard to the section on conflicts of interest (paragraphs 310.1 to 311.2 A4)
of this code – conflicts of interest and professional and personal relationships.
340.8 A4 While the insolvency practitioner might regard an association as not being a cause for concern,
the perception of others might differ. In considering perception, it is expected that be
considered on the basis of a reasonable and informed third party, weighing up all the specific
facts and circumstances available to the insolvency practitioner at that time.
340.8 A5 When referring work, insolvency practitioners have a responsibility to ascertain that a referral
is conducted in accordance with this Code because insolvency practitioners cannot do, or be
seen to do, through others what they cannot not do themselves.
340.8 A6 Where the insolvency practitioner does not control decisions about referral and commission
arrangements, to comply with the requirements in this section the insolvency practitioner will
need to obtain sufficient information to establish the nature and purpose of any payments
made or received. Reference should also be made to– the insolvency practitioner as an
employee (see paragraph 380).
INDUCEMENTS, INCLUDING GIFTS AND HOSPITALITY
Introduction
350.1 insolvency practitioners are required to comply with the fundamental principles and apply the
conceptual framework to identify, evaluate and address threats.
350.2 In relation to an insolvency appointment, offering or accepting inducements might create a
self-interest, familiarity or intimidation threat to compliance with the fundamental principles,
particularly the principles of integrity, objectivity and professional behaviour.
350.3 This section sets out requirements and application material relevant to applying the
conceptual framework in relation to the offering and accepting of inducements when
performing services that does not constitute non-compliance with laws and regulations. This
section also requires an insolvency practitioner to comply with relevant laws and regulations
when offering or accepting inducements.
Requirements and Application Material
General
350.4 A1 An inducement is an object, situation, or action that is used as a means to influence another
individual’s behaviour, but not necessarily with the intent to improperly influence that
individual’s behaviour. Inducements can range from minor acts of hospitality, to acts that
result in non-compliance with laws and regulations. An inducement can take many different
forms, for example:
• gifts.
• hospitality.
• entertainment.
• political or charitable donations.
• appeals to friendship and loyalty.
• employment or other commercial opportunities.
• preferential treatment, rights or privileges.
350.4 A2 An inducement might be offered to the firm, an individual within the firm or a close or
immediate family member, as well as to the insolvency practitioner personally. Inducements
offered to others will still give rise to threats to compliance with the fundamental principles.
Inducements Prohibited by Laws and Regulations
R350.5 In many jurisdictions, there are laws and regulations, such as those related to bribery and
corruption, that prohibit the offering or accepting of inducements in certain circumstances.
The insolvency practitioner shall obtain an understanding of relevant laws and regulations
and comply with them when the insolvency practitioner encounters such circumstances.
Inducements Not Prohibited by Laws and Regulations
350.5 A1 The offering or accepting of inducements that is not prohibited by laws and regulations might
still create threats to compliance with the fundamental principles.
Inducements with Intent to Improperly Influence Behaviour
R350.6 An insolvency practitioner shall not offer, or encourage others to offer, any inducement that
is made, or which the insolvency practitioner considers a reasonable and informed third
party would be likely to conclude is made, with the intent to improperly influence the
behaviour of the recipient or of another.
R350.7 An insolvency practitioner shall not accept, or encourage others to accept, any inducement
that the insolvency practitioner concludes is made, or considers a reasonable and informed
third party would be likely to conclude is made, with the intent to improperly influence the
behaviour of the recipient or of another.
350.7 A1 An inducement is considered as improperly influencing an individual’s behaviour if it causes
the individual to act in an unethical manner. Such improper influence can be directed either
towards the recipient or towards another individual entity or that has some relationship with
the recipient. The fundamental principles are an appropriate frame of reference for an
insolvency practitioner in considering what constitutes unethical behaviour on the part of the
insolvency practitioner and, if necessary by analogy, others.
350.7 A2 A breach of the fundamental principle of integrity arises when an insolvency practitioner offers
or accepts, or encourages others to offer or accept, an inducement where the intent is to
improperly influence the behaviour of the recipient or of another individual.
350.7 A3 The determination of whether there is actual or perceived intent to improperly influence
behaviour requires the exercise of professional judgement. Relevant factors to consider might
include:
• The nature, frequency, value and cumulative effect of the inducement.
• Timing of when the inducement is offered relative to any action or decision that it might
influence.
• Whether the inducement is a customary or cultural practice in the circumstances, for
example, offering a gift on the occasion of a religious holiday or wedding.
• Whether the inducement is ancillary to the insolvency appointment, for example, offering
or accepting lunch in connection with a business meeting.
• Whether the offer of the inducement is limited to an individual recipient or available to a
broader group. The broader group might be internal or external to the firm, such as other
suppliers to the provider of the inducement.
• The roles and positions of the individuals offering or being offered the inducement.
• Whether the insolvency practitioner knows, or has reason to believe, that accepting the
inducement would breach the policies and procedures of the recipient.
• The degree of transparency with which the inducement is offered.
• Whether the inducement was required or requested by the recipient.
• The known previous behaviour or reputation of the offeror.
Consideration of Further Actions
350.8 A1 If the insolvency practitioner becomes aware of an inducement offered with actual or
perceived intent to improperly influence behaviour, threats to compliance with the
fundamental principles might still be created even if the requirements in the paragraphs
R350.6 and R350.7 are met.
350.8 A2 Examples of actions that might be safeguards to address such threats include:
• informing senior management of the firm or those charged with governance of the offeror
regarding the offer.
• amending or terminating the business relationship with the offeror.
Inducements with No Intent to Improperly Influence Behaviour
350.9 A1 The requirements and application material set out in the conceptual framework apply when an
insolvency practitioner has concluded there is no actual or perceived intent to improperly
influence the behaviour of the recipient or of another.
350.9 A2 If such an inducement is trivial and inconsequential, any threats created will be at an acceptable
level.
350.9 A3 Examples of circumstances where offering or accepting such an inducement might create
threats even if the insolvency practitioner has concluded there is no actual or perceived intent
to improperly influence behaviour include:
• Self-interest threats
o An insolvency practitioner is offered hospitality from the prospective purchaser of
an insolvent business.
• Familiarity threats
o An insolvency practitioner regularly takes someone to an event.
• Intimidation threats
o An insolvency practitioner accepts hospitality, the nature of which could be
perceived to be inappropriate were it to be publicly disclosed.
350.9 A4 Relevant factors in evaluating the level of such threats created by offering or accepting such an
inducement include the same factors set out in paragraph 350.7 A3 for determining intent.
350.9 A5 Examples of actions that might eliminate threats created by offering or accepting such an
inducement include:
• Declining or not offering the inducement.
• Transferring responsibility for the provision of professional services to another individual
who the insolvency practitioner has no reason to believe would be, or would be perceived
to be, improperly influenced when providing the services.
350.9 A6 Examples of actions that might be safeguards to address such threats created by offering or
accepting such an inducement include:
• Being transparent with senior management of the firm about offering or accepting an
inducement.
• Registering the inducement in a log monitored by senior management of the firm or
another individual responsible for the firm’s ethics compliance or maintained by the
recipient.
• Having an appropriate reviewer, who is not otherwise involved in the insolvency
appointment, review any work performed or decisions made by the insolvency practitioner
with respect to the provider of the inducement to the insolvency practitioner.
• Donating the inducement to charity after receipt and appropriately disclosing the
donation, for example, to a member of senior management of the firm or of those who
offered the inducement.
• Reimbursing the cost of the inducement, such as hospitality, received.
• As soon as possible, returning the inducement, such as a gift, after it was initially accepted.
R350.10 If an insolvency practitioner encounters a situation in which no or no reasonable action can
be taken to reduce a threat arising from offers of gifts or hospitality to an acceptable level
the insolvency practitioner shall conclude that it is not appropriate to accept the offer.
R350.11 An insolvency practitioner shall not offer or provide gifts or hospitality where this would give
rise to an unacceptable threat to compliance with the fundamental principles.
Immediate or Close Family Members
R350.12 An insolvency practitioner shall remain alert to potential threats to the insolvency
practitioner’s compliance with the fundamental principles created by the offering of an
inducement by or to an immediate or close family member of the insolvency practitioner.
R350.13 Where the insolvency practitioner becomes aware of an inducement being offered to or
made by an immediate or close family member and concludes there is intent to improperly
influence behaviour, or considers a reasonable and informed third party would be likely to
conclude such intent exists, the insolvency practitioner shall advise the immediate or close
family member not to offer or accept the inducement.
350.13 A1 The factors set out in paragraph 350.7 A3 are relevant in determining whether there is actual or
perceived intent to improperly influence behaviour. Another factor that is relevant is the
nature or closeness of the relationship, between:
a) the insolvency practitioner and the immediate or close family member;
b) the immediate or close family member and the other party; and
c) the insolvency practitioner and the other party.
For example, the offer of employment, outside of the normal recruitment process, to the
spouse of the insolvency practitioner by a creditor in an insolvency might indicate such intent.
350.13 A2 The application material in paragraph 350.8 A2 is also relevant in addressing threats that might
be created when there is actual or perceived intent to improperly influence behaviour even if
the immediate or close family member has followed the advice given pursuant to paragraph
R350.13.
Application of the Conceptual Framework
350.14 A1 Where the insolvency practitioner becomes aware of an inducement offered in the
circumstances addressed in paragraph R350.12, threats to compliance with the fundamental
principles might be created where:
a) The immediate or close family member offers or accepts the inducement contrary to the
advice of the insolvency practitioner pursuant to paragraph R350.13; or
b) The insolvency practitioner does not have reason to believe an actual or perceived intent
to improperly influence behaviour exists.
350.14 A2 The application material in paragraphs 350.9 A1 to 350.9 A6 is relevant for the purposes of
identifying, evaluating and addressing such threats. Factors that are relevant in evaluating the
level of threats in these circumstances also include the nature or closeness of the relationships
set out in paragraph 350.13 A1.
Financial incentives for team members
350.15 A1 An insolvency practitioner or members of the insolvency team might be offered an inducement
by their employer to achieve certain targets relating to insolvency appointments. Such
arrangements might create threats to compliance with the fundamental principles.
350.15 A2 Examples of circumstances that might create a self-interest threat include situations in which the
insolvency practitioner or members of the insolvency team:
a) Holds a direct or indirect financial interest in the employing organisation and the value of
that financial interest might be directly affected by decisions made by the insolvency
practitioner.
b) Is eligible for a profit-related bonus and the value of that bonus might be directly affected
by decisions made by the insolvency practitioner.
c) Participates in arrangements which provide incentives to achieve targets.
ADVERTISING, MARKETING AND OTHER PROMOTIONAL ACTIVITIES
Introduction
360.1 insolvency practitioners are required to comply with the fundamental principles and apply the
conceptual framework to identify, evaluate and address threats.
360.2 When an insolvency practitioner seeks an insolvency appointment or work that might lead to
an insolvency appointment through advertising or other forms of marketing or promotional
activity, there might be threats to compliance with the fundamental principles, including
integrity and professional behaviour.
360.3 This section sets out requirements and application material relevant to applying the
conceptual framework in relation to advertising and marketing for insolvency appointments
and includes the content of the websites and other promotional activities.
360.4 Reference should also be made to Specialist advice and services (320) and Referral fees and
commissions (340).
Requirements and Application Material
R360.5 When undertaking marketing or promotional activities, an insolvency practitioner shall not
bring the profession into disrepute. An insolvency practitioner shall be honest and truthful
and shall not make:
a) exaggerated claims for the services offered by, or the qualifications or experience of, the
insolvency practitioner; or
b) disparaging references or unsubstantiated comparisons to the work of others.
R360.6 When considering whether to accept an insolvency appointment an insolvency practitioner
shall be satisfied that any advertising, marketing or other form of promotional activity
pursuant to which the insolvency appointment might have been obtained:
a) has been fair and not misleading
b) has avoided unsubstantiated or disparaging statements
c) has complied with relevant codes of practice and guidance in relation to advertising
d) has been clearly distinguishable as advertising or marketing material, and has been legal,
decent, honest and truthful.
360.6 A1 If reference is made in advertisements or other forms of marketing to fees or to the cost of the
services to be provided, the insolvency practitioner needs to be satisfied that the basis of
calculation and the range of services that the reference is intended to cover has been
provided. The insolvency practitioner needs to take care to ensure that such references are
clear as to the precise range of services and the time commitment that the reference is
intended to cover.
360.6 A2 If an insolvency practitioner is in doubt about whether a form of advertising or marketing is
appropriate, the insolvency practitioner is encouraged to consult with their authorising body.
R 360.7 Where an insolvency practitioner or the firm obtains work via a third party or a third party
conducts marketing activities on behalf of the insolvency practitioner or the firm, the
insolvency practitioner shall be responsible for ensuring that the third party follows the
application material above.
360.7 A1 When obtaining work via a third party or using a third party to conduct marketing activities
insolvency practitioners have a responsibility to ascertain that a referral manner is in
accordance with this Code because insolvency practitioners cannot do, or be seen to do,
through others what they cannot not do themselves.
R360.8 Insolvency Practitioners shall never promote or seek to promote their services, or the
services of other insolvency practitioners, in such a way, or to such an extent, as to amount
to harassment.
DEALING WITH THE ASSETS OF AN ENTITY
Introduction
370.1 insolvency practitioners are required to comply with the fundamental principles and apply the
conceptual framework to identify, evaluate and address threats.
370.2 When an insolvency practitioner realises assets, this might create threats to compliance with
one or more of the fundamental principles. This section sets out specific application material
relevant to applying the conceptual framework in such circumstances.
Requirements and Application Material
R370.3 Except in circumstances which clearly do not impair the insolvency practitioner’s objectivity,
insolvency practitioners appointed to any insolvency appointment in relation to an entity,
shall not themselves acquire, directly or indirectly, any of the assets of an entity, nor
knowingly permit any individual within the firm, or any close or immediate family member
of an individual within the firm, directly or indirectly, to do so.
370.3 A1 Where the assets and business of an insolvent company are sold by an insolvency practitioner
shortly after appointment on pre-agreed terms, this could lead to an actual or perceived threat
to objectivity. The sale could also be seen as a threat to objectivity by creditors or others not
involved in the prior agreement.
370.3 A2 Examples of actions that might be safeguards to address threats to objectivity include:
a) obtaining an independent valuation of the assets or business being sold;
b) considering other potential purchasers.
370.3 A3 It is important for an insolvency practitioner to take care to ensure (where to do so does not
conflict with any legal or professional obligation) that their decision-making processes are
transparent, understandable and readily identifiable to all third parties who could be affected
by a sale or proposed sale.
THE INSOLVENCY PRACTITIONER AS AN EMPLOYEE
Introduction
380.1 All insolvency practitioners are required to comply with the fundamental principles and apply
the conceptual framework to identify, evaluate and address threats.
380.2 Where an insolvency practitioner is an employee of a firm, the insolvency practitioner might
face particular threats to compliance with the fundamental principles. This section sets out
specific application material relevant to applying the conceptual framework in such
circumstances. It does not describe all of the facts and circumstances, including professional
activities, interests and relationships, that could be encountered by insolvency practitioner
who is an employee, which create or might create threats to compliance with the fundamental
principles. Therefore, the conceptual framework requires insolvency practitioners who are
employees to be alert for such facts and circumstances.
380.3 On occasion, where the insolvency practitioner is an employee or is considering accepting an
offer of employment, the insolvency practitioner might be unable to address the threats to
compliance with the fundamental principles. In those circumstances the insolvency
practitioner will need to consider whether they can accept the offer of employment or resign
from their current employment.
Requirements and Application Material
380.4 An insolvency practitioner might be an employee, contractor, partner, or director within the
firm. The legal form of the relationship of the insolvency practitioner with their employer has
no bearing on the ethical responsibilities placed on the insolvency practitioner.
R380.5 An insolvency practitioner who is an employee shall comply with the fundamental principles.
380.5 A1 The insolvency practitioner who is an employee might have a reduced ability to control or
influence matters within the firm which might affect the actions available as safeguards to
address threats to compliance with the fundamental principles.
380.5 A2 The following are examples of facts and circumstances that might create threats for an
insolvency practitioner as an employee:
• being eligible for a bonus related to achieving targets or profits;
• having inadequate resources for the performance of an insolvency appointment;
• a lack of control over processes and internal governance;
• being threatened with dismissal or demotion over a disagreement about an insolvency
appointment;
• an individual attempting to influence the decision-making process of the insolvency
practitioner.
R380.6 An insolvency practitioner shall consider whether there are appropriate safeguards available
to ensure compliance with the fundamental principles before accepting an offer of
employment.
380.6 A1 Examples of actions that might be safeguards to address such threats prior to accepting an
offer of employment include:
a) Appropriate provisions within any contract of employment or separate legal agreement
with the employer acknowledging that the insolvency practitioner has a duty to comply
with the Code of Ethics of their authorising body and that the insolvency practitioner will
be able to take all necessary steps they deem necessary to comply with the fundamental
principles.
b) Ensuring that policies and procedures are in place within the firm to prohibit individuals
who are not members of the insolvency team from inappropriately influencing the conduct
of an insolvency appointment.
c) Ensuring that the firm has published policies and procedures to encourage and empower
individuals within the firm to communicate to senior levels within the firm any issue
relating to compliance with the fundamental principles that concern them.
d) Obtaining sufficient information to obtain an understanding of the structure and
ownership of the firm.
380.6 A2 If no actions are available to address these threats, it is expected that the insolvency
practitioner consider whether it is appropriate to accept the offer of employment.
380.6 A3 The existence of certain conditions, policies and procedures established by the profession,
legislation, regulation, the firm, or the employing organization that can enhance the insolvency
practitioner acting ethically might also help identify threats to compliance with the
fundamental principles. In this context such factors could include:
a) Policies and procedures within the firm to prohibit individuals who are not members of the
insolvency team from inappropriately influencing the conduct of an insolvency
appointment.
b) Published policies and procedures to encourage and empower individuals within the firm
to communicate to senior levels within the firm any issue relating to compliance with the
fundamental principles that concern them.
380.6 A4 Examples of actions that might be safeguards to address threats at a particular time include:
a) reporting concerns to senior management within the firm
b) seeking legal advice or advice from their authorising body
c) reporting the concerns to their authorising body or the Complaints Gateway.
380.6 A5 The more senior the position of the insolvency practitioner, the greater will be the ability and
opportunity to access information, and to influence policies, decisions made and actions taken
by others involved with the firm. To the extent that they are able to do so, taking into account
their position and seniority in the organisation, insolvency practitioners are expected to
encourage and promote an ethics-based culture in the organisation. Examples of actions that
might be taken include the introduction, implementation and oversight of:
• ethics education and training programs.
• ethics and whistle-blowing policies.
• policies and procedures designed to prevent non-compliance with laws and regulations.
R380.7 Where threats to compliance with the fundamental principles cannot be eliminated or
reduced to an acceptable level then the insolvency practitioner shall not accept the insolvency
appointment or refuse to remain associated with the matter creating the conflict.
380.7 A1 In some circumstances this could mean taking steps to resign from the employment.
380.7 A2 Reference should also be made to Obtaining specialist advice and services and Referral fees and
commissions.
RESPONDING TO NON-COMPLIANCE WITH LAWS AND REGULATIONS
Introduction
390.1 insolvency practitioners are required to comply with the fundamental principles and apply the
conceptual framework set to identify, evaluate and address threats.
390.2 A self-interest or intimidation threat to compliance with the principles of integrity and
professional behaviour is created when an insolvency practitioner becomes aware of non-
compliance or suspected non-compliance with laws and regulations.
390.3 An insolvency practitioner might encounter or be made aware of non-compliance or suspected
non-compliance in the course of carrying out professional activities. This section guides the
insolvency practitioner in assessing the implications of the matter and the possible courses of
action when responding to non-compliance or suspected non-compliance with:
a) Laws and regulations generally recognised to have a direct effect on the conduct of an
appointment;
b) Other laws and regulations that do not have a direct effect on the conduct of an
appointment, but compliance with which might be fundamental to the outcome of an
appointment.
c) Other laws and regulations that do not have a direct effect on the conduct of an
appointment, but compliance with which might be fundamental to the operating aspects of
the employing organisation’s business, to its ability to continue its business, or to avoid
material penalties.
Objectives of the insolvency practitioner in relation to non-compliance with laws and regulations
390.4 A distinguishing mark of the insolvency profession is its acceptance of the responsibility to act
in the public interest. When responding to non-compliance or suspected non-compliance, the
objectives of the insolvency practitioner are:
a) To comply with the principles of integrity and professional behaviour;
b) By alerting management or, where appropriate, those charged with governance of the
entity, to seek to:
i. Enable them to rectify, remediate or mitigate the consequences of the
identified or suspected non-compliance; or
ii. Deter the commission of the non-compliance where it has not yet
occurred; and
c) By alerting management or, where appropriate, those charged with governance of the
employing organisation, to seek to:
i. Enable them to rectify, remediate or mitigate the consequences of the
identified or suspected non-compliance; or
ii. Deter the non-compliance where it has not yet occurred; and
d) To take such further action as appropriate in the public interest.
Requirements and Application Material
General
390.5 A1 Non-compliance with laws and regulations (“non-compliance”) comprises acts of omission or
commission, intentional or unintentional, which are contrary to the prevailing laws or
regulations committed by the following parties:
a) an entity over which the insolvency practitioner has been appointed;
b) those charged with governance of an entity;
c) management of an entity;
d) other individuals working for or under the direction of an entity;
e) the insolvency practitioner’s employing organization;
f) those charged with governance of the employing organisation;
g) management of the employing organisation;
h) other individuals working for or under the direction of the employing organisation.
390.5 A2 Examples of laws and regulations which this section addresses include those that deal with:
● insolvency processes and procedures.
● fraud, corruption and bribery.
● money laundering, terrorist financing and proceeds of crime.
● securities markets and trading.
● banking and other financial products and services.
● data protection.
● tax and pension liabilities and payments.
● environmental protection.
● public health and safety.
390.5 A3 Non-compliance might result in fines, litigation or other consequences for the entity or
employing organisation, potentially materially affecting its financial statements. Importantly,
such non-compliance might have wider public interest implications in terms of potentially
substantial harm to creditors, employees, investors or the general public. For the purposes of
this section, an act that causes substantial harm is one that results in serious adverse
consequences to any of these parties in financial or non-financial terms. Examples include
breaches of environmental laws and regulations endangering the health or safety of
employees or the public and perpetration of fraud against appointment estates resulting in
significant financial loss to creditors.
R390.6 In some jurisdictions, there are legal or regulatory provisions governing how insolvency
practitioners should address non-compliance or suspected non-compliance. These legal or
regulatory provisions might differ from or go beyond the provisions in this section, for
example, anti-money laundering legislation. When encountering such non-compliance or
suspected non-compliance, the insolvency practitioner shall obtain an understanding of
those legal or regulatory provisions and comply with them, including:
a) any requirement to report the matter to an appropriate authority; and
b) any prohibition on alerting the relevant party.
390.6 A1 A prohibition on alerting the relevant party might arise, for example, pursuant to anti-money
laundering legislation.
390.6 A2 An insolvency practitioner who encounters or is made aware of matters that are clearly
inconsequential is not required to comply with this section unless other laws or regulations
require it. For example, an insolvency practitioner in the UK needs to comply with Anti-Money
Laundering legislation which contains no de minimis threshold for reporting. Whether a matter
is clearly inconsequential is to be judged with respect to its nature and its impact, financial or
otherwise, on the entity or employing organisation, its stakeholders and the general public.
390.6 A3 This section does not address:
a) Personal misconduct unrelated to the business activities of the entity or employing
organisation; and
b) Unless required by other laws or regulations, non-compliance by parties other than those
specified in paragraph 390.5 A1. This includes, for example, circumstances where an
insolvency practitioner has been engaged by a client to perform a due diligence
assignment on a third party entity and the identified or suspected non-compliance has
been committed by that creditor.
The insolvency practitioner might nevertheless find the guidance in this section helpful in considering how
to respond in these situations.
Responsibilities of Management and Those Charged with Governance
390.7 A1 Management of an entity or employing organisation, with the oversight of those charged with
governance, is responsible for ensuring that the entity’s business activities are conducted in
accordance with laws and regulations. Management and those charged with governance are
also responsible for identifying and addressing any non-compliance by:
a) the entity or employing organisation;
b) an individual charged with governance of the entity or employing organisation;
c) a member of management; or
d) other individuals working for or under the direction of the entity or the employing
organisation.
Responsibilities of All insolvency practitioners
R390.8 If protocols and procedures exist within the insolvency practitioner’s employing organisation
to address non-compliance or suspected non-compliance, the insolvency practitioner shall
consider them in determining how to respond to such non-compliance.
390.8 A1 Many employing organisations have established protocols and procedures regarding how to
raise non-compliance or suspected non-compliance internally. These protocols and procedures
include, for example, an ethics policy or internal whistle-blowing mechanism. Such protocols
and procedures might allow matters to be reported anonymously through designated
channels.
R390.9 Where an insolvency practitioner becomes aware of a matter to which this section applies,
the steps that the insolvency practitioner takes to comply with this section shall be taken on
a timely basis. In taking timely steps, the insolvency practitioner shall have regard to the
nature of the matter and the potential harm to the interests of the entity, creditors,
employees, investors, or the general public.
390.9 A1 insolvency practitioners are reminded especially of the guidance in paragraph R390.6 above in
relation to over-riding laws and regulations.
Obtaining an Understanding of the Matter and Addressing It with Management and Those Charged with
Governance
R390.10 If an insolvency practitioner becomes aware of information concerning non-compliance or
suspected non-compliance, the insolvency practitioner shall seek to obtain an understanding
of the matter. This understanding shall include the nature of the non-compliance or
suspected non-compliance and the circumstances in which it has occurred or might be
about to occur.
390.10 A1 The insolvency practitioner is expected to apply knowledge and expertise, and exercise
professional judgement. However, the insolvency practitioner is not expected to have a level
of understanding of laws and regulations beyond that which is required for the appointment.
Whether an act constitutes actual non-compliance is ultimately a matter to be determined by
a court or other appropriate adjudicative body.
390.10 A2 Depending on the nature and significance of the matter, the insolvency practitioner might
consult on a confidential basis with others within the firm, a network firm or a professional
body, or with legal counsel.
390.10 A3 The insolvency practitioner is reminded especially of the guidance in paragraph R390.6 above
in relation to over-riding laws and regulations.
R390.11 If the insolvency practitioner identifies or suspects that non-compliance has occurred or
might occur, the insolvency practitioner shall discuss the matter with the appropriate level
of management. If the insolvency practitioner has access to those charged with governance,
the insolvency practitioner shall also discuss the matter with them where appropriate.
390.11 A1 The purpose of the discussion is to clarify the insolvency practitioner’s understanding of the
facts and circumstances relevant to the matter and its potential consequences. The discussion
also might prompt management or those charged with governance to investigate the matter.
390.11 A2 The appropriate level of management with whom to discuss the matter is a question of
professional judgement. Relevant factors to consider include:
● the nature and circumstances of the matter;
● the individuals actually or potentially involved;
● the likelihood of collusion;
● the potential consequences of the matter;
● whether that level of management is able to investigate the matter and take appropriate
action.
Communicating the Matter to the Entity’s External Auditor
R390.12 If the insolvency practitioner is liquidator in a members voluntary liquidation for:
a) an audit client of the firm or a network firm; or
b) a component of an audit client of the firm or a network firm,
the insolvency practitioner shall consider whether to communicate the non-compliance or
suspected non-compliance within the firm or to the network firm, as appropriate. Where
the communication is made, it shall be made in accordance with the firm’s or network’s
protocols or procedures. In the absence of such protocols and procedures, it shall be made
directly to the audit engagement partner.
R390.13 If the insolvency practitioner is supervisor of a Company Voluntary Arrangement the
insolvency practitioner shall consider whether to communicate the non-compliance or
suspected non-compliance to the firm that is the client’s external auditor, if any.
Relevant Factors to Consider
390.13 A1 Factors relevant to considering the communication in accordance with paragraphs R390.12
and R390.13 include:
● Whether doing so would be contrary to law or regulation.
● Whether there are restrictions about disclosure imposed by a regulatory agency or
prosecutor in an ongoing investigation into the non-compliance or suspected non-
compliance.
● Whether management or those charged with governance have already informed the
entity’s external auditor about the matter.
● The likely materiality of the matter to the audit of the client’s financial statements or,
where the matter relates to a component of a group, its likely materiality to the audit of
the group financial statements.
Purpose of Communication
390.13 A2 In the circumstances addressed in paragraphs R390.12 to R390.13, the purpose of the
communication is to enable the audit engagement partner to be informed about the non-
compliance or suspected non-compliance and to determine whether and, if so, how to
address it in accordance with the provisions of this section.
Considering Whether Further Action Is Needed
R390.14 The insolvency practitioner shall also consider whether further action is needed in the
public interest.
390.14 A1 Whether further action is needed, and the nature and extent of it, will depend on factors such
as:
● the legal and regulatory framework;
● the appropriateness and timeliness of the response of management and, where
applicable, those charged with governance;
● the urgency of the situation;
● the involvement of management or those charged with governance in the matter;
● the likelihood of substantial harm to the interests of the client, investors, creditors,
employees or the general public.
390.14 A2 Further action by the insolvency practitioner might include:
● Disclosing the matter to an appropriate authority even when there is no legal or
regulatory requirement to do so.
● Resigning from the appointment where permitted by law or regulation.
390.14 A3 In considering whether to disclose to an appropriate authority, relevant factors to take into
account include:
● Whether doing so would be contrary to law or regulation.
● Whether there are restrictions about disclosure imposed by a regulatory agency or
prosecutor in an ongoing investigation into the non-compliance or suspected non-
compliance.
R390.15 If the insolvency practitioner determines that disclosure of the non-compliance or
suspected non-compliance to an appropriate authority is an appropriate course of action in
the circumstances, that disclosure is permitted pursuant to paragraph R104.3(d) of the
Code. When making such disclosure, the insolvency practitioner shall act in good faith and
exercise caution when making statements and assertions. The insolvency practitioner shall
also consider whether it is appropriate to inform the entity of the insolvency practitioner’s
intentions before disclosing the matter.
Imminent Breach
R390.16 In exceptional circumstances, the insolvency practitioner might become aware of actual or
intended conduct that the insolvency practitioner has reason to believe would constitute an
imminent breach of a law or regulation that would cause substantial harm to investors,
creditors, employees or the general public. Having first considered whether it would be
appropriate to discuss the matter with management or those charged with governance of
the entity, the insolvency practitioner shall exercise professional judgement and determine
whether to disclose the matter immediately to an appropriate authority in order to prevent
or mitigate the consequences of such imminent breach of law or regulation. If disclosure is
made, that disclosure is permitted pursuant to paragraph R104.3(d) of the Code.
Seeking Advice
390.16 A1 The insolvency practitioner might consider:
● consulting internally;
● obtaining legal advice to understand the professional or legal implications of taking any
particular course of action;
● consulting on a confidential basis with a regulatory body or their authorising body.
Documentation
390.16 A2 In relation to non-compliance or suspected non-compliance that falls within the scope of this
section, the insolvency practitioner is encouraged to document:
● the matter;
● the results of discussion with management and, where applicable, those charged with
governance and other parties;
● how management and, where applicable, those charged with governance have responded
to the matter;
● the courses of action the insolvency practitioner considered, the judgements made and
the decisions that were taken;
● how the insolvency practitioner is satisfied that the insolvency practitioner has fulfilled
the responsibility set out in paragraph R390.14.
390.16 A3 The insolvency practitioner is encouraged to consider whether there is a need for any such
documentation to be filed separately.
Responsibilities of members of the insolvency team
R390.17 If, in the course of carrying out professional activities, a member of the insolvency team
becomes aware of information concerning non-compliance or suspected non-compliance,
the team member shall seek to obtain an understanding of the matter. This understanding
shall include the nature of the non-compliance or suspected non-compliance and the
circumstances in which it has occurred or might occur.
390.17 A1 The team member is expected to apply knowledge and expertise, and exercise professional
judgement. However, the team member is not expected to have a level of understanding of
laws and regulations greater than that which is required for the team member’s role within
the employing organisation. Whether an act constitutes non-compliance is ultimately a matter
to be determined by a court or other appropriate adjudicative body.
390.17 A2 Depending on the nature and significance of the matter, the team member might consult on a
confidential basis with others within the employing organisation or an authorising body, or
with legal counsel.
390.17 A3 A member of the insolvency team’s attention is drawn to the content of paragraph R390.17.
R390.18 If the team member identifies or suspects that non-compliance has occurred or might occur,
the team shall, subject to paragraph R390.17, inform an immediate superior to enable the
superior to take appropriate action. If the team member’s immediate superior appears to
be involved in the matter, the team member shall inform the next higher level of authority
within the employing organisation.
R390.19 In exceptional circumstances, the team member may determine that disclosure of the
matter to an appropriate authority is an appropriate course of action. If the team member
does so pursuant to paragraphs 390.17 A2 and A3, that disclosure is permitted pursuant to
paragraph R104.3(d) of the Code. When making such disclosure, the team member shall act
in good faith and exercise caution when making statements and assertions.
Documentation
390.19 A1 In relation to non-compliance or suspected non-compliance that falls within the scope of this
section, the team member is encouraged to have the following matters documented:
● the matter;
● the results of discussions with the team member’s superior, management and, where
applicable, those charged with governance and other parties;
● how the team member’s superior has responded to the matter;
● the courses of action the team member considered, the judgements made and the
decisions that were taken.
390.20 A2 The team member is encouraged to consider whether there is a need for any such
documentation to be filed separately.
500 THE APPLICATION OF THE FRAMEWORK TO SPECIFIC SITUATIONS
Introduction to specific situations
500.1 The following examples describe specific circumstances and relationships that will create threats
to compliance with the fundamental principles. The examples are intended to assist an
insolvency practitioner and the members of the insolvency team to assess the implications of
similar, but different, circumstances and relationships.
500.2 Section 510 contains examples which do not relate to a previous or existing insolvency
appointment. Section 520 contains examples that do relate to a previous or existing insolvency
appointment. Section 530 contains some examples under Scottish law. Section 600 contains
examples relevant to the Republic of Ireland.
500.3 The examples included in these sections are not exhaustive, and the substance of the
circumstances and relationships should be considered.
500.4 When considering specific situations, insolvency practitioners should refer to the section on
professional and personal relationships and changes in circumstances. As interests and
relationships might change during an appointment, a significant professional relationship can
arise as a result of an insolvency practitioner acting as an officeholder in a prior insolvency. An
insolvency practitioner is expected to consider both pre-appointment engagements, and / or
prior insolvency appointments when assessing whether they have a significant professional
relationship. Insolvency practitioners are also expected to document their considerations and
conclusions when assessing specific situations.
510 Examples that do not relate to a previous or existing insolvency appointment
510.1 insolvency appointment following audit related work
Previous relationship: The firm or an individual within the firm has completed audit related
work.
Response: A Significant Professional Relationship will normally arise where the audit related
work was completed within the previous 3 years. An insolvency practitioner shall not take the
insolvency appointment as it is unlikely that appropriate action can be taken to reduce the
threat to compliance with the fundamental principles to an acceptable level.
Where audit related work was completed more than 3 years before the proposed date of the
appointment of the insolvency practitioner a threat to compliance with the fundamental
principles could still arise. The insolvency practitioner shall evaluate any such threat and
consider whether the threat can be eliminated or reduced to an acceptable level by the use of
safeguards.
This restriction does not apply where the insolvency appointment is in a members’ voluntary
liquidation; an insolvency practitioner may normally take an appointment as liquidator.
However, the insolvency practitioner shall consider whether there are any other
circumstances that give rise to an unacceptable threat to compliance with the fundamental
principles. Further, the insolvency practitioner shall satisfy them self that the directors’
declaration of solvency is likely to be substantiated by events.
510.2 Appointment as Investigating Accountant at the instigation of a creditor
Previous relationship: The firm or an individual within the firm was instructed by, or at the
instigation of, a creditor or other party having a financial interest in an entity, to investigate,
monitor or advise on its affairs.
Response: A Significant Professional Relationship would not normally arise in these
circumstances provided that:
a) there has not been a direct involvement by an individual within the firm in the management
of the entity; and
b) the firm had its principal client relationship with the creditor or other party, rather than with
the company or proprietor of the business; and
c) the entity was aware of this.
An insolvency practitioner shall however consider all the circumstances before accepting an
insolvency appointment, including the effect of any discussions or lack of discussions about
the financial affairs of the company with its directors, and whether such circumstances give
rise to an unacceptable threat to compliance with the fundamental principles.
Where such an investigation was conducted at the request of, or at the instigation of, a
secured creditor who then requests an insolvency practitioner to accept an insolvency
appointment as an administrator or administrative receiver, the insolvency practitioner shall
satisfy them self that the company, acting by its board of directors, does not object to them
taking such an insolvency appointment. If the secured creditor does not give prior warning of
the insolvency appointment to the company or if such warning is given and the company
objects but the secured creditor still wishes to appoint the insolvency practitioner, they shall
consider whether the circumstances give rise to an unacceptable threat to compliance with
the fundamental principles.
520 Examples relating to previous or existing insolvency appointments
520.1 insolvency appointment following an appointment as administrative or other receiver
Previous appointment: An individual within the firm has been administrative or other
receiver.
Proposed appointment: Any insolvency appointment.
Response: It is unlikely that appropriate action can be taken to reduce the threat to
compliance with the fundamental principles to an acceptable level. An insolvency practitioner
shall not accept any insolvency appointment.
This restriction does not, however, apply where the individual within the firm was appointed
a receiver by the court. In such circumstances, the insolvency practitioner shall however
consider whether there are any other circumstances which give rise to an unacceptable threat
to compliance with the fundamental principles.
520.2 Administration or Liquidation following appointment as supervisor of a voluntary arrangement
Previous appointment: An individual within the firm has been supervisor of a company
voluntary arrangement.
Proposed appointment: Administrator or liquidator.
Response: An insolvency practitioner may normally accept an appointment as administrator
or liquidator. However the insolvency practitioner shall consider whether there are any
circumstances that give rise to an unacceptable threat to compliance with the fundamental
principles.
520.3 Liquidation following appointment as administrator
Previous Appointment: An individual within the firm has been administrator.
Proposed Appointment: Liquidator.
Response: An insolvency practitioner may normally accept an appointment as liquidator
provided they have complied with the relevant legislative requirements. However, the
insolvency practitioner shall also consider whether there are any circumstances that give rise
to an unacceptable threat to compliance with the fundamental principles.
520.4 Conversion of members’ voluntary liquation into creditors’ voluntary liquidation
Previous appointment: An individual within the firm has been the liquidator of a company in
a members’ voluntary liquidation.
Proposed appointment: Liquidator in a creditors’ voluntary liquidation, where it is necessary
to seek a nomination from the company’s creditors.
Response: Where there has been a Significant Professional Relationship, an insolvency
practitioner may continue or accept an appointment (subject to creditors’ decision or deemed
consent) only if they conclude that the company will eventually be able to pay its debts in full,
together with interest.
However, the insolvency practitioner shall consider whether there are any other
circumstances that give rise to an unacceptable threat to compliance with the fundamental
principles.
520.5 Bankruptcy following appointment as supervisor of an individual voluntary arrangement
Previous appointment: An individual within the firm has been supervisor of an individual
voluntary arrangement.
Proposed Appointment: Trustee in bankruptcy.
Response: An insolvency practitioner may normally accept an appointment as trustee in
bankruptcy. However, the insolvency practitioner shall consider whether there are any
circumstances that give rise to an unacceptable threat to compliance with the fundamental
principles.
530 Examples in respect of cases conducted under Scots Law
530.1 Sequestration following appointment as trustee under a trust deed for creditors
Previous appointment: An individual within the firm has been trustee under a trust deed for
creditors.
Proposed appointment: Interim trustee or trustee in a sequestration.
Response An insolvency practitioner may normally accept an appointment as an interim
trustee or trustee in the sequestration. However, the insolvency practitioner shall consider
whether there are any circumstances that give rise to an unacceptable threat to compliance
with the fundamental principles.
530.2 Sequestration where the Accountant in Bankruptcy is trustee following appointment as
trustee under a trust deed for creditors
Previous appointment: An individual within the firm has been trustee under a trust deed for
creditors.
Proposed appointment: Administering the sequestration under a contract for insolvency
services with the Accountant in Bankruptcy.
Response: The firm may normally accept an appointment under the contract for insolvency
services with the Accountant in Bankruptcy. However, an individual within the firm shall
consider whether there are any circumstances that give rise to an unacceptable threat to
compliance with the fundamental principles.
530.3 Sequestration or trust deed trustee following appointment as continuing money adviser under
a Debt Arrangement Scheme
Previous appointment: An individual within the firm has been a continuing money advisor
under a revoked Debt Arrangement Scheme relating to the debtor.
Proposed appointment: Trustee in a sequestration or a trust deed
Response: An insolvency practitioner may normally accept an appointment as a trustee under
a trust deed or as a trustee in a sequestration. However, the insolvency practitioner shall
consider whether there are any circumstances that give rise to an unacceptable threat to
compliance with the fundamental principles.
600 APPLICATION IN THE REPUBLIC OF IRELAND
Definitions
600.1 In relation to insolvency practice within the Republic of Ireland, the following amended
definitions shall apply:
authorising body A prescribed accountancy body under any legislation governing the
administration of insolvency in the Republic of Ireland;
A Supervisory Authority established under legislation governing insolvency
in the Republic of Ireland; or
The Insolvency Service of Ireland established pursuant to section 8 of the
Personal Insolvency Act 2012.
insolvency A formal appointment under any legislation in the Republic of Ireland
appointment which must be undertaken by an insolvency practitioner.
insolvency An individual who is qualified to act as a liquidator under the Companies
practitioner Act 2014 in the Republic of Ireland or a person that is appointed as a
receiver to a company or the assets of a company in Ireland.
600.2 insolvency practitioners shall comply with the requirements of this Code in relation to
insolvency practice within the Republic of Ireland. Referral Fees and Commissions notes that
the payment of such fees and commissions to any creditor or members is prohibited and gives
rise to a Category 2 offence pursuant to Section 642 of the Companies Act 2014.
600.3 The following examples describe specific circumstances and relationships that will create
threats to compliance with the fundamental principles. The examples are intended to assist
an insolvency practitioner and the members of the insolvency team to assess the implications
of similar, but different, circumstances and relationships.
600.4 Liquidation following appointment as a receiver
Previous appointment: An individual within the firm has been receiver of any assets of a
company or any company within a group with which it is associated.
Proposed appointment: Liquidator
Response: Where the receivership was completed within the previous 3 years, an insolvency
practitioner or an individual within the firm shall not accept an appointment as liquidator as it is
unlikely that appropriate action can be taken to reduce the threat to compliance with the
fundamental principles to an acceptable level.
Where the receivership was completed more than 3 years before the proposed date of winding
up a threat to compliance with the fundamental principles might still arise. The insolvency
practitioner or individual within the firm shall evaluate any such threat and consider whether the
threat can be eliminated or reduced to an acceptable level by the use of safeguards.
600.5 An appointment following a significant professional relationship
Previous appointment: The firm or an individual within the firm has had a significant
professional relationship with a company or any company within a group with which it is
associated.
Proposed appointment: Any insolvency appointment
Response: Where the significant professional relationship was present within the previous 3
years, an insolvency practitioner or an individual within the firm shall not accept an insolvency
appointment as it is unlikely that appropriate action can be taken to reduce the threat to
compliance with the fundamental principles to an acceptable level.
Where the significant prior relationship was terminated more than 3 years before the proposed
date of the insolvency appointment a threat to compliance with the fundamental principles
might still arise. The insolvency practitioner or individual within the firm shall evaluate any such
threat and consider whether the threat can be eliminated or reduced to an acceptable level by
use of safeguards.
600.6 Liquidation following examination
Previous appointment: An individual within the firm has been examiner and the examiner is
unable to formulate proposals for the survival of the company or where the court fails to confirm
the examiner's proposals for the survival of the company, and the company subsequently goes
into liquidation (either voluntarily or by order of the court).
Response: An insolvency practitioner may normally accept an appointment as liquidator provided
they have complied with the relevant legislative requirements. However, the insolvency
practitioner shall also consider whether there are any circumstances that give rise to an
unacceptable threat to compliance with the fundamental principles.
600.7 Receivership following examinership
Previous appointment: The firm or an individual within the firm has been examiner and the
examiner is unable to formulate proposals for the survival of the company or the court fails to
confirm the examiner's proposals for the survival of the company, and the company
subsequently goes into liquidation (either voluntarily or by order of the court) or a secured
lender appoints a receiver.
Response: An insolvency practitioner may normally accept an appointment as receiver
provided they have complied with the relevant legislative requirements. However, the
insolvency practitioner shall also consider whether there are any circumstances that give rise
to an unacceptable threat to compliance with the fundamental principles.
600.8 insolvency appointment following audit related work
Previous relationship: The firm or an individual within the firm has completed audit related
work.
Response: A significant professional relationship will normally arise where the audit related work
was completed within the previous 3 years. An individual within a firm shall not take the
insolvency appointment as it is unlikely that appropriate action can be taken to reduce the threat
to compliance with the fundamental principles to an acceptable level.
Where audit related work was completed more than 3 years before the proposed date of the
appointment of the insolvency practitioner a threat to compliance with the fundamental
principles might still arise. The insolvency practitioner shall evaluate any such threat and consider
whether the threat can be eliminated or reduced to an acceptable level by the use of safeguards.
Note - Section 635 of the Companies Act 2014 prohibits an auditor from acting as a liquidator
when they are or have been in the previous twenty four months prior to the date of
commencement of the insolvency appointment, auditor to any client, even a solvent one.
Definitions and interpretation
authorising body A body declared to be a recognised professional body under any legislation
governing the administration of insolvency in the United Kingdom.
close or immediate A spouse, civil partner (or equivalent), dependant, parent, child or sibling.
family
Employee A person subject to a contract of employment or a contract for services with an
insolvency practitioner or a firm
Entity Any natural or legal person or any group of such persons, including a
partnership.
firm The firm (a sole practitioner, partnership, limited liability partnership or
corporation) in which the insolvency practitioner practises together with:
a) an entity that controls the firm, through ownership, management or other
means
b) an entity controlled by the firm, through ownership, management or other
means
c) an entity with which the firm is under common control through ownership,
management or other means.
individual within the The insolvency practitioner, any principals in the firm and any employees of the
firm firm.
insolvency appointment A formal appointment under the terms of legislation in the United Kingdom,
which must be undertaken by an insolvency practitioner.
Insolvency practitioner An individual who is authorised or recognised as an insolvency practitioner in
the United Kingdom by an authorising body.
Insolvency team All persons under the control or direction of an insolvency practitioner.
Network A larger structure:
a) that is aimed at co-operation; and
b) that is clearly aimed at profit or cost sharing or shares common ownership,
control or management, common quality control policies and procedures,
common business strategy, the use of a common brand name, or a
significant part of professional resources.
Principal In respect of a firm:
a) which is a company: a director
b) which is a partnership: a partner
c) which is a limited liability partnership: a member
d) which is comprised of a sole practitioner: that person.
Alternatively, any person within the firm who is held out as being a director,
partner or member.
Kohtutäiturite ja Pankrotihaldurite Koda
Tartu mnt 16 Meie: 29.05.2023 nr 12-1/2023-007-3
Tallinn
Kiri edastatud digitaalselt aadressil:
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Maksejõuetuse teenistuse soovitused pankrotihalduri hea kutsetava osas
Austatud Koja kutsekogu esinaine, juhtkond, aukohus ja liikmed
Kohtutäiturite ja Pankrotihaldurite Koja erakorralise kutsekogu 30.06.2022 otsusega nr 2 on
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juulil 2022.a.
Kuivõrd üks aasta on vastava redaktsiooni kehtivusest kohe möödumas ning vahepeal on
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lisandunud Eesti esimene pankrotiombudsman ehk maksejõuetuse praktika ühtlustamisele
kaasa aitav ja pankrotihaldurite üle haldusjärelevalvet teostav maksejõuetuse teenistus, siis
kasutame siinkohal juhust, et edastada Teile kõigile Koja pankrotihalduri hea kutsetava
täiendamisettepanekud ja mõned soovitused andmaks enda panus Eestis kvaliteetse
maksejõuetusteenuse osutamisse ja ausama ettevõtluskeskkonna tagamisse (vaata palun Lisa 1
– Näidis. Pankrotihalduri eetikakoodeks. Täiendused).
Maksejõuetuse teenistuse hinnangul tuleb Koja kehtivas kutsetavas kirjeldatud väärtusi ja
tegevuspõhimõtteid detailsemalt lahti kirjutada, et võimaldada kõigile ühtset ühetaolist
arusaama, mida üks või teine väärtus ja põhimõte pankrotihalduri töös ja kutsetegevuses
tähendab.
Pankrotihaldur ei ole ettevõtja, vaid ta täidab avalikku ülesannet ja sellega kaasneb kõrgendatud
avalik huvi ja vastutus kogu ühiskonna ees. Teie sõltumatust ja erapooletust varjutavad
kõrvalised tegevused ja ärid peavad huvide konfliktide ennetamiseks ja vältimiseks lõppema.
Huvide konfliktide pinnalt tekkinud vaidlused tekitavad muuhulgas menetluskulusid, mis ei ole
põhjendatud. Maksejõuetuse teenistuse hinnangul ei tohi Teie ise või Teie büroo töötajad,
abilised, kaasatud nõustajad ja/või esindajad tegeleda kõrvalt muude tegevuste, teenuste
osutamiste ja äridega, mis tekitavad näiliselt ja tegelikult võlausaldajates ja avalikkuses Teie
kui pankrotihalduri aususe ja usaldusväärsuse osas märkimisväärseid küsitavusi ja etteheiteid.
Tatari 39 / 10134 Tallinn / 667 2400 /
[email protected] / Registrikood 70000303
Kehtestatud hea kutsetava peaks kohalduma kõigile pankrotihalduri kutse kandjatele ja kõigile
ettenähtud kutsetegevustele. Vajadusel palun tooge heas kutsetavas välja selged erisused või
erandid.
Ühtlasi teeb maksejõuetuse teenistus Teile ettepaneku, et Te ei jätaks heast kutsetavast välja ka
suhete reguleerimist erinevate järelevalveorganitega, sh pankroti toimkonnaga, kohtuga,
maksejõuetuse teenistuse, Andmekaitseinspektsiooni, Finantsinspektsiooni jt. Tasub kaaluda
näiteks kas reguleerida suhteid ka krediidi- ja makseasutustega või nende
katuseorganisatsioonidega, et avalikkus ja menetlusosalised saaksid halduri kutsetegevuses
kehtivatest tavadest aru.
Juhul, kui Te olete varasemalt võlgniku ja tema lähikondsetega juba kuidagi seotud olnud, siis
palume olla enda, teiste Koja liikmete ja järelevalveorganite suhtes aus ning end kohtule mitte
välja pakkuda, sest Te ei ole sõltumatu ega erapooletu seda konkreetset avalikku ülesannet
täitma.
Teil kui avaliku ülesande täitjatel tuleb muuhulgas rakendada riigi hea halduse tavasid ning
Teile usaldatud (võlausaldajate ja riigi) ressursse planeerida ning kasutada heaperemehelikult
ja säästlikult ning rakendada otstarbekaid ostude läbiviimise põhimõtteid (nt võrreldavate
pakkumiste võtmine ja nende eelnev tutvustamine menetluste rahastajatele).
Soovime Teile kõigile neil teemadel konstruktiivseid arutelusid ja julgust olla avatud
uuendusteks!
Loodame uut täiustatud kutsetava või eetikakoodeksit näha Koja kodulehel kehtimas esimesel
võimalusel kuid mitte hiljem kui 1. juulil 2023.a.
Oleme soovi korral valmis Teie aruteludel pankrotiombudsmani rollis osalema.
Lugupidamisega
(digiallkirjastatud)
Signe Viimsalu
Maksejõuetuse teenistuse juhataja
667 27 03
Lisa 1. Näidis. Pankrotihalduri eetikakoodeks. Täiendused.
(st maksejõuetuse teenistuse ettepanekud ja mõned näidissõnastused võimalikeks täiendusteks Koja
kehtestatud dokumendis „Pankrotihaldurite ja saneerimisnõustajate hea kutsetava“)
ÜLDSÄTTED
1. Eetikakoodeksi reguleerimisala
1.1. Eetikakoodeks koondab pankrotihalduri kutse eetika nõuded ning head tavad.
Pankrotihalduri kutse eetika on avaliku ülesande täitjalt nõutavate väärtuste ja põhimõtete
kogum.
2 (7)
1.2. Pankrotihalduri kutsetegevuseks on pankrotimenetluste läbiviimine, tegutsemine
juriidilise isiku sundlõpetamise korral kohtu poolt määratud likvideerijana, tegutsemine
saneerimisnõustajana ning õigusaktidega pandud teiste ülesannete täitmine, nagu näiteks
usaldusisikuna tegutsemine, ajutise haldurina kohtule eksperthinnangu andmine või ajutise
halduri ülesannetes võlgniku likvideerimine menetluse raugemise korral.
1.3. Pankrotihalduri kutsetegevus peab tagama Eestis ausa ettevõtlusökosüsteemi toimimise ja
suurendama võlausaldajate kindlustunnet, et tema raha kasutatakse menetlustes
heaperemehelikult.
1.4. Selleks, et täita pankrotihalduri kutsetegevust ning saavutada üldsuse usaldus
pankrotihalduri kutse vastu ning et seda usaldust ka säilitada, peab iga pankrotihaldur sellele
kaasa aitama, lähtudes oma kutsetegevuses järgmistest väärtustest: ausus ja väärikus,
sõltumatus, erapooletus, poliitiline neutraalsus, huvide konflikti ennetamine, kompetentsus
ning koostöö ja avatus.
1.5. Pankrotihalduri kutsetegevusega seotud pankrotihalduri kutse kandjatele, büroo
töötajatele, teenuseosutajatele, abilistele, esindajatele ja kaasatud muudele asjatundjatele tuleb
tutvustada käesolevat eetikakoodeksit enne isiku vastavasse menetlusse kaasamist või
määramist.
1.6. Eetikakoodeksi eesmärgiks on anda pankrotihalduri kutse kandjale st ajutisele haldurile,
saneerimisnõustajale, haldurile, usaldusisikule ja likvideerijale (edaspidi nimetatud:
pankrotihaldur) raamistik käitumisotsuste tegemiseks töistes olukordades.
1.7. Kui menetlemisel ilmnevad asjaolud, mis annavad põhjust kahelda isiku usaldusväärsuses
ja võimes järgida eetikakoodeksit, taotleb isik enda taandamist ülesande täitmisest.
1.8. Hinnangu asjaolude olulisusele ja taandamise vajalikkusele annab vajadusel
järelevalveorgan.
1.9. Eetikakoodeks põhineb ametniku eetikakoodeksil ja on täienduseks
korruptsioonivastasele seadusele, saneerimis- ja maksejõuetusalastele seadustele ja kutset
reguleerivate katuseorganisatsioonide juhtimisorganite otsustele.
1.10. Kutse-eetika nõudeid tõlgendatakse seaduse, kohtulahendite, kutset reguleerivate
katuseorganisatsioonide juhtimisorganite otsustele, järelevalveorganite ja aukohtu lahendite,
eetika- ja metoodikakomisjoni soovituste, kujunenud praktika ja tava, samuti
südametunnistuse alusel.
2. Kutse-eetika nõuete järgimine
2.1. Pankrotihalduri kutse kohustab pankrotihaldurit järgima kutse-eetika nõudeid.
2.2. Kutse-eetika nõuete järgimist tagab iga pankrotihalduri teadlikkus pankrotihalduri
kutsega kaasnevatest kohustustest ning valitsev avalik arvamus.
2.3. Pankrotihalduri töö eesmärk on ausalt ja väärikalt tegutseda riigi ning ühiskonna
hüvanguks panustades oma tegevusega Eesti ausama ettevõtlusökosüsteemi tagamisse.
2.4. Pankrotihaldurist avaliku ülesande teostaja juhindub oma tegevuses eetikakoodeksis välja
toodud eetilistest väärtustest.
2.5. Eetikakoodeksis sätestatud kutse eetika nõuete rikkumise eest võib pankrotihalduri suhtes
algatada aukohtu menetluse ja määrata pankrotihaldurile distsiplinaarkaristuse.
ÜLDISED VÄÄRTUSED JA PÕHIMÕTTED
3. Pankrotihalduri olulisimad väärtused ja tegevuspõhimõtted
3 (7)
3.1. Asjatundlikkus ja ausus
3.1.1. Asjatundlikkus tähendab, et:
a) pankrotihaldur tegutseb oma töövaldkonna parimatest teadmistest ja oskustest lähtuvalt;
b) pankrotihaldur hoiab end kursis ametiülesannete täitmiseks vajalike valdkondlike
arengutega ja täiendab end pidevalt;
c) pankrotihaldur on oma tegevuses uuendusmeelne, olles suunatud ametialaste probleemide
lahendamisele, mitte uute tekitamisele.
d) pankrotihaldur omab ülevaadet oma menetluste seisust ja arvust ehk töökoormusest, ei
venita ega jäta menetlust põhjendamatult seisma.
3.1.2. Pankrotihaldur tunneb ja järgib kehtivaid kvaliteedistandardeid ning teisi
ametiülesannete täitmiseks vajalikke õigusakte, kohtulahendeid, juhendeid ja tavasid, mis
loovad eelduse tema professionaalseks tegevuseks ja käitumiseks.
3.1.3. Pankrotihaldur arendab pidevalt kompetentse, mis on vajalikud tema
teenistusülesannete täitmiseks.
3.1.4. Pankrotihaldur peab keelduma kutsetegevusest ja ametiülesannetest, mille tegemiseks
tal puuduvad teadmised ja oskused.
3.1.5. Pankrotihaldur on ametikohustusi täites ning ametikohustusi lõpetades, sh üle andes
kiire, täpne, hoolas, kohusetundlik, viisakas ja asjatundlik.
3.1.6. Kõigil on õigus eeldada, et pankrotihaldur on oma tegevuses kompetentne, aus ja
usaldusväärne.
3.1.7. Pankrotihaldur ei võta ametiülesannet vastu või loobub ametiülesandest, kui tema
töökoormus seda ei võimalda, samuti siis, kui pankrotihalduri kutseoskused ja -teadmised
selles valdkonnas ei võimalda ametiülesandeid parimal võimalikul viisil teostada.
3.1.8. Pankrotihaldur peab endale teadvustama, et üldsuse usaldus ja lugupidamine
pankrotihalduri kutsetegevuse suhtes tuleneb iga pankrotihalduri tegevusest või
tegevusetusest nii minevikus kui ka olevikus.
3.1.9. Pankrotihalduri käitumine peab olema laitmatu igal ajal ja olukorras. Vajakajäämised
ametialases tegevuses või vääritu käitumine eraelus seavad kahtluse alla pankrotihalduri töö
kvaliteedi ning võivad kahtlema panna ka kogu pankrotihalduri kutse usaldusväärsuses.
3.1.10. Pankrotihaldur keeldub ametiülesannet vastu võtmast, kui pankrotihalduril on olnud
varasem kokkupuude pankrotivõlgniku ja/või tema lähikondsetega mistahes vormis ja rollis,
mis võib tekitada avalikkuse silmis ja üldsuse arvamuse kohaselt näilise huvide konflikti
situatsiooni.
3.1.11. Pankrotihaldur kohtleb inimesi samasuguse austusega, nagu ta ootab, et koheldaks
teda.
3.1.12. Pankrotihaldur on aus talle ülesannete täitmiseks usaldatud mistahes ressursse
kasutades.
3.1.13. Pankrotihaldur on avatud katuseorganisatsiooni liikmeskonna-sisesteks aruteludeks
tema töö tulemuste üle, et jagatud kogemuste abil tõsta pankrotihalduri kutse ja tööde
kvaliteeti ja strateegilist väärtust tulevikus.
3.2. Seaduslikkus
3.2.1. Seaduslikkus tähendab, et:
a) pankrotihaldur on seaduskuulekas ning lähtub Eesti Vabariigi põhiseadusest ja seadustest;
b) pankrotihaldur kasutab talle kutsetegevuseks antud võimu seadusega ette nähtud piirides.
3.2.2. Pankrotihaldur tegutseb vastutustundlikult, mõistes, et tema otsustel on mõju
inimestele, ettevõtluskeskkonnale ja ühiskonnale.
3.3. Sõltumatus
4 (7)
3.3.1. Pankrotihalduri kutsetegevus on alati korraldatud nii, et ta on sõltumatu.
3.3.2. Pankrotihaldur on nii tegelikult sõltumatu, kui ta ka teeb kõik endast oleneva, et paista
sõltumatuna.
3.3.3. Pankrotihaldur on sõltumatu kõigis oma töö aspektides, eriti aruannete ja
eksperthinnangute koostamisel. Aruanded ja eksperthinnangud peavad põhinema üksnes
tõendusmaterjalil, mida on kogutud tunnustatud kvaliteedistandarditest lähtudes. Aruannetes
ja eksperthinnangutes tuleb käsitleda kõiki teadaolevaid fakte, mille mitteavaldamine võiks
moonutada järeldusi, st varjata probleeme rahaliste vahendite kasutamisel ja ülesannete
täitmisel.
3.3.4. Pankrotihalduri sõltumatust ei tohi mitte üheski menetlusega seotud küsimuses
mõjutada ei isiklikud ega ka välised huvid: eelarvamused kohtu, järelevalveorganite ja
menetlusosaliste suhtes; varasem kokkupuude menetlusosalistega; rahalised suhted; isiklikud
suhted; teened ja soodustused vms, mis vähendavad lojaalsust Eesti ausa
ettevõtlusökosüsteemi hüvanguks ning võivad põhjustada või põhjustavad huvide konflikte.
3.3.5. Pankrotihaldur kohustub vältima sekkumist nendesse teemadesse ja küsimustesse, mis
on seotud tema menetlusväliste huvidega.
3.4. Erapooletus
3.4.1. Erapooletus tähendab, et:
a) Pankrotihaldur hoidub tegevustest ja olukordadest, mis võivad kahtluse alla seada
tema erapooletuse ülesannete saamisel ja täitmisel;
b) Pankrotihaldur hoidub kingitustest, soodustustest ja teenetest, mis seavad kahtluse alla
tema ametialase usaldusväärsuse, sõltumatuse ja objektiivsuse;
c) Pankrotihaldur kohtleb kõiki ühiskonnagruppe ja inimesi võrdselt.
3.3.2. Pankrotihaldur käsitleb erinevates menetlustes sarnaseid küsimusi sarnaselt. Ta osutab
ka tähelepanu menetluse käigus täheldatud probleemide esinemisele.
3.4. Usaldusväärsus
3.4.1. Usaldusväärsus tähendab, et:
a) pankrotihaldur teostab talle määratud avalikke ülesandeid ainult avalikes huvides;
b) pankrotihaldur hoidub ametipositsiooni ja teenistuskohustuste täitmisel teatavaks saadud
informatsiooni kasutamisest isiklikus, era- ja muudes huvides;
c) on tööülesandeid täites ja töövälisel ajal väärikas ning hoidub pankrotihalduri maine
kahjustamisest;
d) pankrotihaldur kasutab talle usaldatud teiste menetlusosaliste ja riigi vara ning rahalisi
vahendeid eesmärgipäraselt, tõhusalt ja säästlikult;
e) pankrotihaldur ei omasta talle usaldatud vara;
f) pankrotihaldur võib ametialastes küsimustes avaldada isiklikku arvamust, tehes seda
vastutustundlikult, argumenteeritult ja kehtestatud piiranguid arvestades;
g) pankrotihaldur juhib koheselt järelevalveorganite tähelepanu pankrotihalduri kutsetegevuse
usaldusväärsust kahjustavale tegevusele või tegevusetusele.
3.4.2. Pankrotihaldur võib kuuluda erakonda ja mittetulunduslikesse organisatsioonidesse
ning nende juhtorganitesse, kuid ta ei tohi kutsetegevuses juhinduda oma poliitilistest,
usulistest, maailmavaatelistest või muudest veendumustest ja erakondlikust kuuluvusest.
3.4.3. Pankrotihalduril on keelatud omada äriühinguid ja kõrvaltegevusi ning tegutseda
kutsealal, mis on vastuolus pankrotihalduri kutse eetika nõuetega või sõltumatuse ja
erapooletuse põhimõttega või mis on muul viisil sobimatu pankrotihalduri kutsega.
3.5. Huvide konflikti ennetamine ja vältimine
5 (7)
3.5.1. Pankrotihaldur täidab oma ametiülesandeid avalikes huvides.
3.5.2. Pankrotihaldur ei tegele reeglina kõrvaltegevustega ja -äridega väljaspool
pankrotihalduri kutsetegevust.
3.5.2. Pankrotihaldur ei kuritarvita oma ametiseisundit, tehes omakasu eesmärgil
põhjendamatuid või õigusvastaseid otsuseid või toiminguid ning keeldub teenustest,
kingitustest, soodustustest, rahast, pärandist jms, mis võivad mõjutada tema sõltumatust
ametiülesannete täitmisel või mida võidakse nii käsitada.
3.5.3. Pankrotihaldur ei rakenda ametiülesannete täitmisel saadud infot kellegi teise kasu
saamise teenistusse. Pankrotihaldur ei kasuta ise omakasu eesmärgil ega avalikusta teavet, mis
võib anda inimestele või organisatsioonidele teiste ees ebaausaid või põhjendamatuid eeliseid,
ega kasuta saadud infot teiste inimeste, organisatsioonide ja riigi kahjustamise eesmärgil.
3.5.4. Pankrotihaldur väldib niisuguseid mistahes suhteid, mis võivad avaldada negatiivset
mõju tema töö tulemustele ja/või ohustada pankrotihalduri kutse mainet.
3.5.5. Huvide konflikti ilmnemisel keeldub pankrotihaldur ametiülesande saamiseks
pöördunud isiku ametiülesannet vastu võtmast.
3.5.6. Pankrotihaldur on kohustatud loobuma ametiülesande täitmisest, kui pärast selle
vastuvõtmist ilmneb asjaolu, mis oleks välistanud ametiülesande vastuvõtmise.
3.5.7. Pankrotihaldur ei või mistahes teenust osutada isikule, kelle huvid on vastuolus teise
isiku huvidega, kellele sama pankrotihaldur või sama äriühing, mille kaudu pankrotihaldur
tegutseb, samas asjas teenust osutab või on osutanud, samuti muudel seadusega ettenähtud
juhtudel.
SUHTED PANKROTIHALDURI BÜROOS
4. Järelevalve hea tava, kutse-eetika ja eetikakoodeksi nõuete täitmise üle
4.1. Järelevalvet hea tava, kutse-eetika ja eetikakoodeksi nõuete täitmise üle büroos teostab
pankrotihaldurist büroo pidaja.
4.2. Pankrotihaldurist mentori kohustuseks on jälgida, et tema juhendamisel olevad
pankrotihalduri abilised, töötajad jms personal või pankrotihaldurile teenuseid osutavad isikud
(õigusnõustajad, eksperdid) järgiksid kutse-eetika nõudeid.
4.3. Vajadusel rakendab büroo pidaja sanktsioone rikkujate suhtes.
SUHTED JÄRELEVALVEORGANITEGA
5. Järelevalvemenetlused pankrotihalduri tegevuse üle
5.1. Pankrotihaldur on kohustatud säilitama enda töö (toimiku) materjale.
5.2. Pankrotihaldur võimaldab järelevalve teostajal järelevalvemenetluse läbi viia efektiivselt
ja eesmärgipäraselt, samuti võimalikult lihtsalt ja kiirelt, vältides üleliigseid kulutusi ja
ebameeldivusi.
5.3. Pankrotihaldur rakendab vajalikke abinõusid ja erialaseid teadmisi menetlustoimingute
(näiteks ligipääsude tagamine ja töö materjalide üleandmine uuele menetlejale) täitmiseks
mõistliku aja jooksul või määratud tähtaja puhul tähtpäevaks ning hoidub isikutele ja
järelevalveorganitele põhjendamatute kulutuste tekitamisest.
5.4. Pankrotihaldur on kohustatud menetlusosalisi ja järelevalveorganeid regulaarselt
teavitama enda menetlustoimingutest ja menetlust puudutavatest olulistest ja/või avalikus
huvis olevatest asjaoludest ning vastama järelepärimistele asjakohaselt ja õigeaegselt.
6 (7)
6. SUHTED KOHTUGA
6.1. Pankrotihaldur keeldub kohtult ametiülesannet vastu võtmast, kui pankrotihalduril on
olnud varasem kokkupuude pankrotivõlgniku ja/või tema lähikondsetega mistahes vormis,
mis võib tekitada avalikkuses isegi näilise huvide konflikti situatsiooni.
6.2. Pankrotihalduri ja kohtunike vahelised suhted on tööalased ja professionaalsed.
7. PANKROTIHALDURI KÄTTE USALDATUD VARA OMAKASUPÜÜDMATU
KASUTAMINE
7.1. Pankrotihaldur planeerib ja kasutab talle usaldatud mistahes isiku vara peaperemehelikult,
säästlikult ja üksnes konkreetse menetluse huvides, mitte isikliku omakasu huvides.
7.2. Pankrotihaldur avab kutsealase(d) konto(d) ja hoiab enda, enda büroo ja menetluste varad,
sh rahalised vahendid rangelt lahus.
7.3. Pankrotihaldur järgib menetlustes ostude ja kulutuste tegemisel (riigi)hanke põhimõtteid ja
tagab tehingute tegemiseks vajaliku konkurentsi (näiteks võrreldavate pakkumiste võtmine ja
nende eelnev tutvustamine menetluste rahastajatele enne tehingu tegemist).
7.4. Pankrotihaldur teeb pankrotivara müügi planeerimisel mõistlikult kaalutletud erapooletuid
otsuseid nii hinna kui müügiprotseduuri osas.
7 (7)
MTÜ Eesti Võlanõustajate Liit
Rüütli 38 Meie: 08.12.2023 nr 12-1/2023-036-1
Pärnu
Kiri edastatud digitaalselt aadressil:
[email protected]
Maksejõuetuse teenistuse tutvustus ja pöördumine usaldusisikutele
Austatud koostööpartner
Maksejõuetuse teenistus on pankrotiseadusega loodud Justiitsministeeriumi valitsemisalas asuv
sõltumatu haldus- ja riikliku järelevalveorgan, mille ülesanded ja pädevus on sätestatud
Vabariigi Valitsuse seaduse, riigieelarveseaduse, haldusmenetluse seaduse, halduskoostöö
seaduse, avaliku teabe seaduse, pankrotiseaduse, korrakaitseseaduse, avaliku teenistuse
seaduse, märgukirjale ja selgitustaotlusele vastamise ning kollektiivse pöördumise esitamise
seaduse jt eelkõige avalikku sektorit puudutavate seadustega.
Meie koduleht: https://maksejouetus.konkurentsiamet.ee/
Tatari 39 / 10134 Tallinn / 667 2400 /
[email protected] / Registrikood 70000303
Vastavalt Vabariigi Valitsuse seaduse § 75 teostatakse riiklikku järelevalvet korrakaitseseaduses
ja teistes seadustes sätestatud alusel ja korras.
Vabariigi Valitsuse seaduse § 751 lõikes 1 sätestatud järelevalve on ühe haldusorgani (näiteks
Maksejõuetuse teenistuse) kontroll teise haldusorgani (näiteks pankrotiseaduse §-s 54
nimetatud kutsetegevuse kandjate1 – st pankrotihaldur, saneerimisnõustaja, likvideerija
ülesannetes haldur, usaldusisik) üle.
Praktika ühtlustamise eesmärgil ning vastavalt märgukirjale ja selgitustaotlusele vastamise ning
kollektiivse pöördumise esitamise seadusele võib Maksejõuetuse teenistus teha adressaadile
(näiteks Justiitsministeeriumile, Eesti Advokatuurile, Kohtutäiturite ja Pankrotihaldurite Kojale
või pankrotihalduri kutse kandjatele sh usaldusisikutele) ettepanekuid asutuse või haldusorgani
töö korraldamiseks või valdkonna arengu kujundamiseks ning võib anda adressaadile avaliku
elu ja riigivalitsemisega seotud teavet.
Nii on Maksejõuetuse teenistus 2023.a saatnud avalikke (märgu)kirju, näiteks:
a) 10. veebruaril 2023.a Justiitsministeeriumile seoses pankrotihaldurite töökoormuse
võimaliku tõusuga majanduslanguse tingimustes ja pankrotiseaduse § 59 sätete
mittetäitmisega seoses avaliku teenuse osutamise läbipaistvusega;
b) 9. märtsil 2023.a. Kohtutäiturite ja Pankrotihaldurite Kojale ja pankrotihalduri kutse
kandjatele ehk teistele riigi haldusorganitele tähelepanekud seoses võlausaldajate
suhetega, pankrotimenetluste menetluskulude planeerimisega ja otstarbekuse teemadel
pankrotimenetlustes;
c) 27. mail 2023.a Kohtutäiturite ja Pankrotihaldurite Kojale märgukirja pankrotihaldurite
töökoormuse osas ning soovituse korraldada pankrotihaldurite ja saneerimisnõustajate
eksam;
d) 29. mail 2023.a. Kohtutäiturite ja Pankrotihaldurite Kojale ja pankrotihalduri kutse
kandjatele ehk teistele riigi haldusorganitele soovitused pankrotihalduri hea kutsetava
täiendamiseks; jne
Seega on pankrotihaldurite, sh advokaadi, audiitori või võlanõustaja kvalifikatsiooni omavate
inimeste kui riigile avalike ülesannete täitjate töökoormus Eesti üldise majanduslanguse
tingimustes, maksejõuetusteenuse kui avaliku teenuse osutamise läbipaistvus ja
maksejõuetusteenuse osutamisega seotud kulude otstarbekus olnud Maksejõuetuse teenistuse
kui avaliku huvi ja võlausaldajate huvide kaitsja keskmes selle esimesel tegevusaastal.
Hetkel oleme koostamas järgmise s.o 2024.a tööplaani, mis võib muuhulgas hõlmata füüsiliste
isikute maksejõuetusmenetlusi ja järelevalvet usaldusisikute avalike ülesannete täitmise üle,
kuivõrd Maksejõuetuse teenistusele on laekunud teavet ja märgukirju füüsiliste isikute
maksejõuetusmenetlustes toimuda võivate rikkumiste kohta.
Vastavalt pankrotiseadusele on Maksejõuetuse teenistus oma tegevuses sõltumatu.
Pankrotiseaduse § 1922 lõikes 2 sätestati Maksejõuetuse teenistuse sõltumatuse garantii.
Maksejõuetuse teenistus on iseseisev üksus Konkurentsiameti teenindamisel.
Pankrotiseaduse muutmise seletuskirjas on märgitud, et Maksejõuetuse teenistus peab olema
teemade eestkõneleja laiemalt, tegutsema proaktiivse pankrotikultuuri nimel ning tooma
olulised teemad avalikkuse silma alla.
1
Vastavalt pankrotiseaduse § 54 on pankrotihalduri kutsetegevuseks pankrotimenetluste läbiviimine, tegutsemine
juriidilise isiku sundlõpetamise korral kohtu poolt määratud likvideerijana ja saneerimisnõustajana ning
õigusaktidega pandud teiste ülesannete täitmine, nagu näiteks usaldusisikuna tegutsemine.
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Vastavalt pankrotiseaduse § 1926 tagab kohus Maksejõuetuse teenistusele juurdepääsu
pankroti-, saneerimis-, võlgade ümberkujundamise või füüsilise isiku kohustustest vabastamise
menetlusele või sellega seotud menetlusele, kui kohus saab menetluse algatamise avalduse või
hagi.
Maksejõuetusvaldkonna praktika ühtlustamisele kaasa aitamise eesmärgil saadame Teile ja Teie
katuseorganisatsiooni liikmetele käesolevaga põhjalikult tutvumiseks Maksejõuetuse teenistuse
koostatud pankrotihalduri hea kutsetava täiendused (29. mai 2023) ning teiste riikide ja
rahvusvaheliselt väljatöötatud pankrotihalduri hea kutsetava näidised ja koolitusmaterjalid
(inglise keeles). Leiame, et võlanõustajat ja usaldusisikut kui avaliku ülesande täitjat tuleb
võrdsustada inglise keeles mõistetega insolvency professional või insolvency practitioner ning
avaliku ülesande täitjad peavad käituma erapooletult, sõltumatult, professionaalselt ja huvide
konfliktideta.
Loodame siiralt, et Eesti Võlanõustajate Liit täiendab vajadusel oma liikmeskonna head
kutsetava hiljemalt 2024.a esimesel poolaastal, aitamaks kaasa praktika ühtlustamisele
maksejõuetusvaldkonnas.
Ühtlasi kutsume Eesti Võlanõustajate Liidu juhatuse liikmeid tutvuma Maksejõuetuse
teenistuse esimese tegevusaasta aruandlusega 05. jaanuaril 2024.a kl 10:00
Ühendministeeriumi hoonesse, aadressil Suur-Ameerika 1, Tallinn (Tamme saal).
Palun teatage oma osavõtusoovist e-mailile
[email protected] hiljemalt 22.
detsembril 2023.a (k.a).
Koostööaltilt,
(digiallkirjastatud)
Signe Viimsalu
juhataja
Maksejõuetuse teenistus
667 27 03
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