This is an HTML version of an attachment to the Freedom of Information request 'E&Y's Alan Bloom - DTI Advice - 2000'.

SECTION 7  
 
 
FUNCTIONS 
 
 
7.1 Official Receiver Operations 
 
 
7.1.1 Official Receivers are civil servants, subject to directions, instructions and guidance 
issued by the Inspector General and Agency Chief Executive or, less often, by the Secretary 
of State. By virtue of their statutory office, Official Receivers are also officers of the courts to 
which they are attached and are answerable to the courts for carrying out the courts’ orders, 
for the discharge of their other functions under the legislation and of their other duties under 
those orders.  
 
7.1.2 To aid understanding of this flow charts of the 5 basic insolvency procedures  
(bankruptcy, compulsory winding up, voluntary winding up, administration and 
administrative receivership) are at annexes 7.1-7.5.  
 
Administration 
 
7.1.3 The Official Receiver (OR) becomes receiver and manager on the making of a 
bankruptcy order against an individual or first liquidator on the making of a compulsory 
winding up order against a company. The OR is responsible for protecting the insolvent’s 
assets. 
 
7.1.4 Insolvency Orders are advertised in The London Gazette, published every working day. 
In every case the OR interviews the debtors and issues a report to creditors (and 
contributories in winding up cases) giving details of the assets and liabilities as disclosed by 
the bankrupt, director(s) or partners. 
 
7.1.5 In cases with assets the OR holds a meeting of creditors and seeks the appointment of a 
private sector Insolvency Practitioner (IP) to act as trustee or liquidator.  Where the creditors 
do not appoint an IP, the OR appoints one from a locally held rota unless the assets appear 
insufficient to cover the costs. In such cases with minimal assets (“no asset cases”) the OR 
acts as the trustee or liquidator to realise any assets and complete the administration of the 
estate. 
 
7.1.6 On completion of the administration, whether by OR or by an IP, and the formal 
granting of release as trustee or liquidator, the OR becomes trustee or liquidator ex officio 
and deals with any assets that may later come to light or acquire a realisable value, as well as 
with post-release enquiries. A central unit has been set up in Birmingham to deal with assets 
which cannot be disposed of  e.g. where there is negative equity in property 
The Service’s Technical Section (located in the London Headquarters) considers and 
adjudicates on objections from creditors or bankrupts to the granting of the OR’s release as 
trustee or liquidator. 
 
7.1.7 Bankruptcy and company compulsory liquidation cases that are considered to be of 
national public and/or media interest and cases of unique complexity are handled by the 
Public Interest Unit (PIU) headed by an OR.  Those cases may begin as provisional liquidator 
or interim receiver appointments, be winding up orders following private sector provisional 
liquidations, be orders made on petitions brought by the Secretary of State in the public 
interest or those where the nature of the business or failure warrants ‘special interest’. 
 

Interim receiver and provisional liquidator  
 
7.1.8 At any time after the presentation of the petition and before the petition hearing, a 
creditor may apply to Court for the appointment of the Official Receiver as interim receiver 
of an individual’s estate or for the appointment of a provisional liquidator of a company.  
This appointment is to effect the holding of an estate pending the Court’s decision as to 
whether to make an insolvency order and is appropriate when the Court considers that estate 
to be in jeopardy of some form.  Whilst a private sector insolvency practitioner will usually 
be appointed as provisional liquidator, the PIU OR will always take those appointments 
where the petition has been presented by the Secretary of State in the public interest.  Interim 
Receiver appointments, which are much less common, may be dealt with by the PIU or the 
local OR. 
 
Provisional appointments usually involve the closure of a trading business which could be 
anywhere in the jurisdiction, intensive dealings with members of the public and urgent action 
to preserve and recover assets. 
 
Investigation 
 
7.1.9 In every bankruptcy (with limited exceptions where the debts are under £20,000 - 
classified as a “summary” bankruptcy) and winding up, the Official Receiver has a duty to 
investigate the affairs and causes of failure of the bankrupt or company and the conduct of the 
bankrupt or directors. Under the legislation, powers to require information and documents are 
wide ranging, including the power to hold public examinations in court to secure information. 
 
When the investigation shows that criminal offences may have been committed or there is 
evidence of unfit conduct, the Official Receiver reports the matter to The Service’s 
Headquarters Enforcement Unit. If in cases of disqualification a direction to proceed is issued 
the OR will generally take and argue the case in court on behalf of the Secretary of State.  
 
When an Insolvency Order is made in any case of national, public or media interest it is dealt 
with by the PIU.  These cases will not always have resulted from Secretary of State petitions 
but require urgent, high profile or specialised handling and usually involve large numbers of 
creditors or members of the public. Because of the nature of PIU's cases, most of them 
warrant investigation action by the PIU or in liaison with another investigative or regulatory 
authority. 
 
 
 
 
 
Information on Insolvencies 
 
7.1.10 The Service maintains an electronic register (The Individual Insolvency Register)  
containing records of bankruptcy orders and individual voluntary arrangements in England 
and Wales. The information held on the register database includes the bankrupt’s name, last 
known address, details of the bankruptcy order or voluntary arrangement and, where known, 
the bankrupt’s date of birth, occupation and trading details. The public can search the 
Register at any Official Receiver office and by fax or post. Direct access via the Internet is 
not available. 
 
Records of company liquidations are held by Companies House. 
 
Workflow   
 

7.1.11 The flowcharts at Annexes 7.1 and 7.2 show the flow of core administration and 
investigation business. At present paper records have to be kept for all cases.  Since 
judgements are being made on individuals, face to face interviews are important in most 
cases. Operations are supported by an IT system which is out of date and not sufficiently 
integrated.   Microfiche records from Companies House reduce storage requirements. 
 
7.1.12 Paper based systems are a barrier to greater efficiency and also generate a considerable 
storage requirement. Document handling technologies are being developed by The Service in 
partnership with Unitas under the DTI Elgar contract. Development in this area is essential to 
improving the future administration. Integrated IT systems with effective document handling 
should bring benefits and we asked PFK to look at this in their study of IT see Section 8.2 
 
Comprehensive process review 
7.1.13 The Service is undertaking a comprehensive process review (CPR) of OR operations 
aimed at identifying current best practice, short and medium term process efficiencies and 
longer-term beneficial change. The business objectives of the CPR are:  
•  The identification of best practice with a view to efficiency savings.  
•  The identification of efficiency savings from the use of new technology.  
•  The identification of improvements to customer services.  
•  The development of a process of continuous reviews.  
•  Assurance that all processes have been considered and all improvements and savings have 
been actioned and/or identified.  
The initial aim is that the final Review Report will be completed by 31 March 2001. A budget 
of £10,000 has been allocated for 2000-2001.  
 
 
 
Other approaches to reducing costs 
7.1.14 As noted above paras 7.1.13 The Service have already taken steps to reduce costs and 
a number of other options are being examined including:  
•  A pilot project to trial interviewing by telephone, initially in summary cases where there 
is no obligation to investigate. Despite initial concerns about the need to meet clients face 
to face to be able to make judgements the pilot has shown that there are other ways of 
picking out the cases where further investigation is warranted and the pilot is being 
extended in some regions: 
•  Centralising some functions e.g. the Protracted Realisations Unit already set up in 
Birmingham. 
•  Taping interviews for later transcription only where necessary; 
•  A bid under "Invest to Save" to trial video links with the court e.g. where the distance 
from the OR office is great -Blackpool to Barrow. Although this bid did not succeed the 
Court Service is installing video links between Cardiff and Leeds and the High Court and 
would be willing for others to use spare capacity.  

•  A thorough study of the scope for flexible working, including extending existing (but 
limited) homeworking. 
However, the recent increase in unit cost was in part due to calculation of the unit cost for 
enforcement revealing that some costs had not been properly attributed and a higher 
proportion of the overhead being allocated to the unit cost of OR functions. The scope for 
reducing the overhead, including the DTI overhead, also needs to be considered. 
We commend The Service's continuing efforts to improve its performance. We note 
however that performance has not been benchmarked against other organisations and it is not 
proposed in the process review. We recognise that previous efforts to find suitable partners 
have not borne fruit and we will return to this issue in Stage 2. In the meantime we suggest 
that The Service share experience with the Office of the Accountant in Bankruptcy in 
Scotland which as explained in para 3.28 operates a different system. 

 
Workload 
 
7.1.15 The Insolvency Service is demand-led. Its workload fluctuates according to the state of 
the economy. Company liquidations and individual bankruptcies have remained reasonably 
stable across the Review period with an average new workload of 26,000 cases a year but in 
the early 1990s caseload was considerably higher.  
 
 
 
 
 
 
 
7.1.16 Forecasting workload as accurately as possible is central to financing The Service. 
DTI’s Operational Research Unit (ORU) have developed a model to forecast future caseloads  
which uses forecasts of GDP from 5 independent economic modeling agencies and Treasury, 
supplemented by local knowledge of economic factors that need to be taken into account.  
 
Data analysed is then used to forecast caseload based on historic time series and used by The 
Service as a basis for its planning assumptions.  
 
7.1.17 The outturns over the period of the Review were: 
 
 
1995/96 
1996/97 
1997/98 
1998/99 
1999/00 
Caseload assumption 
25,000 
27,000 
26,000 
26,000 
26,000 
Outturn 
27,570 
26,064 
24,549 
25,770 
26,520 
Variance 
+2,570 
-936 
-1,451 
-230 
+520 
 
The latest model has not been tested across a period of economic change when forecasting is 
always difficult.  Tests on past data showed fairly good correlation between GDP and the 
numbers of bankruptcy and compulsory winding up orders but in the early 1990s the changes  
in numbers of orders ran about a quarter ahead of changes in GDP and the forecasts  
substantially understated actual numbers.  The relative accuracy of forecasts over the past two 
years should be seen as the benchmark for the future but it remains to be seen whether it will 
be possible to forecast sharp upturns or downturns far enough in advance.  
 
For example if there is a downturn in the economy or if policy changes encourage more 
people to petition for bankruptcy, The Service would have difficulty in responding quickly to 
a sudden increase in demand both in terms of paying for extra resources and actually finding 
people with the skills to do the work in the short term. IPs are likely to be under pressure 

themselves. The alternative would be to allow other targets to slip for example by diverting 
resources from enforcement but this is not a decision to be taken lightly. There would also be 
problems if demand falls and remains low for a period in that if staff are diverted to other 
growth activities, it may not be possible to attract them back in times of heavy demand. 
Contingency plans are needed to cope with sudden changes.  
 
Previous Options Review - Official Receiver Administration 
 
7.1.18 In July 1993 Ministers announced the intention to contract out the case administration 
of the Official Receivers. Some 20 companies expressed interest in bidding for the work. Six 
were short-listed. Technical and financial evaluations were carried of each bid. The technical 
evaluation was to determine how the service would be delivered and the financial evaluation 
set bidders’ prices against a benchmark cost of delivering the service in-house. The 
evaluations established that bidders failed in one or both respects to meet the technical 
standards or benchmark costs of the in-house delivery of the functions.  
 
7.1.19 Ministers accepted the recommendation of the Steering Board that none of the bids 
met both costs and quality (i.e. risk to service delivery) criteria and decided in March 1996 
not to contract out these functions. The estimated cost of the exercise was £2m. 
 
 
7.1.20 At that time the emphasis was on contracting out and it had already been decided in 
the 1986 Act that creditors should no longer be able to nominate the OR if there were 
sufficient assets to cover the costs of an IP in realising the assets. While this reduces the cost 
to the taxpayer in terms of The Service’s gross running cost allocation it does not necessarily 
represent the best return for the creditors and could under a net running cost regime enable 
full cost recovery by The Service. Many to whom we spoke were concerned at the level of 
fees charged by IPs especially in these low asset cases. 
 
7.1.21 We have been unable to obtain data on this but there is some in Scotland where work 
in cases where the creditors do not elect an IP is divided regardless of the size of assets 
between the Office of the Accountant in Bankruptcy (OAIB) and private sector IPs selected 
from a rota acting as agents of OAIB and paid according to scale fees (in England though 
scale fees are set, the creditors may agree to pay the IP's normal time rates and in practice this 
is what happens - though how far the creditors have scope to vote otherwise is not entirely 
clear). The Annual Report of OAIB gives the following comparisons between cases where 
private sector IPs are elected as trustees by creditors; those where private sector IPs act as 
agents of OAIB; and those handled by OAIB's Case Management Branch (CMB): 
 
1999/2000 
Private sector trustees 
Agents 
CMB 
Number of cases concluded 
457 
919 
734 
Cases in which dividend paid to preferred and ordinary 
123 (26.9%) 
54 (9.4%) 
64 (8.7%) 
creditors 
Average dividend to ordinary creditors 
21.2p in £ 
28.3p in £*  20.2p in £* 
Number of cases where no dividend paid to any creditors 
334 
865 
670 
Average cost to public funds per case 
 
£1177 
£1048 
Fees and outlays as % of gross receipts 
54.9%** 
28.3% 
30.3% 
 
*CMB and agents paid dividends of more than 25p in the £ in 21 and 22 cases respectively 
and dividends of less than 25p in 35 and 15 cases respectively. The average dividend figures 
mask CMB's success in paying more dividends of up to 25p in the £ to ordinary creditors. 
** This figure is not strictly comparable since the cases handled by IPs tend to be larger 
trading cases and involve legal fees and charges. AIB suggest 40% may be nearer the mark. 
 
7.1.22 These figures suggest that allowing The Service to retain more cases (i.e. raising the 
limit on no asset cases) could be self-financing (if The Service were on a net running cost 

regime) and improve the return to creditors. Other possibilities, such as raising the level of 
debt for summary cases, may emerge. We intend to investigate this further in Stage 2.  
 
7.1.23 Alternatively, when cases are allocated from the rota, requiring IPs to charge scale fees 
would also improve returns to creditors. This may result in some, mainly larger, firms 
withdrawing from the market as has happened in Scotland but there would be greater 
opportunities for small firms. This variant of the Scottish Agency scheme could also allow 
scope to cope with fluctuations by allocating more cases to IP agents at scale fees. Though 
this would cost more it could perhaps be funded from DTI's programme budget (as is the 
agency contract in Scotland) as it would be work over and above that currently carried out in-
house. We understand that this could not be done under the current legislation and we 
recommend that The Service explore further the scope for introducing scale fees where 
the IP is appointed by the Secretary of State.  
 

 
BANKRUPTCY ORDER PROCEDURE   
 
 
 
             Annex 7.1 
 
 
Creditor presents petition for BO. 
Debtor presents petition for BO 
Court may refer “small” 
Minimum debt level £750 
(accompanied by Statement of Affairs 
case to IP to consider 
Deposit of £300 and court fee of 
listing debts & assets). 
IVA. IP receives the 
£120 paid. 
Deposit of £250 and court fee of £120 
£250 deposit. 
paid. 
Debtor enters into 
Court makes BO  
IVA 
(If debts less than £20,000 & no 
bankruptcy in previous 5 years, 
summary certificate issued) 
BO notified to OR 
Interview/investigation of conduct 
by OR 
Report evidence of any 
offences to INS HQ 
OR issues notice of no meeting 
OR summons meeting of 
under s293 IA86 & becomes 
creditors 
trustee 
Insolvency practitioner 
OR makes application to 
OR realises assets/ 
appointed as trustee 
SoS under s296 IA86 for 
obtains IPO/claims after-
appointment of trustee 
acquired property 
OR applies to SoS for 
release as trustee. 
Creditors may object 

 
COMPULSORY WINDING UP PROCEDURE   
 
Annex 7.2 
 
 
Winding-up petition under s124 
Winding-up petition under s124A 
IA86 presented by creditor, 
IA86 presented by SoS on public 
director, company or 
interest grounds 
contributory 
Provisional liquidator 
appointed under s135 IA86 
to protect assets 
Court makes Winding-up Order 
Interview of directors/ investigation of 
WUO notified to OR 
company’s affairs 
Report evidence of 
offences to INS HQ/ 
OR summons meeting of 
OR issues notice of no meeting 
take disqualification 
creditors 
under s136 IA86 & remains as 
proceedings 
liquidator 
OR makes application to SoS 
OR realises assets 
Insolvency practitioner 
under s137 IA86 for appointment 
appointed as liquidator 
of liquidator 
OR applies to SoS 
for release as 
liquidator 
OR applies to Registrar for 
early dissolution 

 
COMPANY VOLUNTARY WINDING UP PROCEDURE 
 
Annex 7.3 
 
 
 
Company passes resolution for 
 
voluntary winding up 
 
 
 
 
 
Meeting of creditors held to nominate 
 
liquidator (and appoint liquidation 
 
committee)  
 
 
 
 
 
Liquidator holds meetings 
Liquidator realises assets and 
Liquidator reports to IS on 
of company and creditors 
directors’ conduct under 
 
makes distribution to creditors 
at each year end 
CDDA and any evidence of 
 
offences to DPP under s218* 
 
 
 
 
 
Liquidator summons final 
 
meetings of  company and 
 
creditors to present account of 
 
winding up 
 
 
 
 
 
 
Liquidator files notice of meeting 
 
with Registrar (thereby effecting his 
 
release). 
Company dissolved 3 months later. 
 
 
 
 
 
 
 
 
 
 
 
* When the Insolvency Bill 2000 becomes law, offences will be reported to The Insolvency 
Service  

 
ADMINISTRATION ORDER PROCEDURE 
 
 
Annex 7.4 
 
 
 
Company, directors or creditor(s) 
Notice served on any floating 
petition Court for Administration 
charge holder, admin receiver, 
Order 
creditor petitioning for winding up 
Interim order preventing action 
against company 
Court makes Administration Order and 
appoints Administrator 
(any winding up petitions dismissed; any 
admin receiver vacates office) 
Administrator takes control of the 
company’s property and manages it’s 
Administrator reports to IS 
affairs 
on directors’ conduct under 
CDDA 
Administration Order discharged or 
varied on application by 
Administrator 
Company handed 
Proposal for Company 
Compulsory winding-
back to directors 
Voluntary 
up order 
and shareholders 
Arrangement 

 
ADMINISTRATIVE RECEIVERSHIP PROCEDURE   
 
Annex  7.5 
 
 
 
Company has borrowed money secured 
by floating charge 
Debenture holder appoints 
administrative receiver 
Admin receiver takes control of 
Admin receiver reports to 
and deals with company’s assets. 
IS on directors’ conduct 
May continue trading if debenture 
under CDDA 
permits.  
Company sold as 
Control of company 
Administration 
Compulsory or voluntary 
going concern, or 
returned to directors 
Order made 
liquidation 
assets sold separately 
and shareholders 

 
Annex 7.6 
 
 
CASEWORK PROCESS 
 
 
 
 
OFFICIAL RECEIVER 
COURT 
Receives Petition deposits       2 
 
 
 
 
 
Insolvency Petition          
 
 
1
B
 
 
 
 
A
ESTATE ACCOUNTING 
 
Each case subject to account of 
 
N
COURT 
 
realisations, fees and charges 
 
Insolvency Order             1 
 
 
 
 
1,2 
 
K
 
  
 
R
 
 
U
 
 
Report to Creditors & 
 
 
P
Receipt of Case by Official 
Contributors 
 
 
T
Receiver 
 
 
 

 
 
Enquires, essential actions, 
 
 

identify, collect and protect assets 
 
 
 

Notice of No Meeting 

 
A
 
 
                  1
 
 
 
 
 
N

 

Examination of Bankrupt/ 
 
Officers 
 
Meeting of Creditors and 
 
 
Assess: causes of failure, assets 
Handover to Insolvency 

 
C
and numeric deficiency 
Practitioner 
 
 
O
Further Enquires          
 
 
 
  2 
 
1

 
M
 
 
P
 
Payment 

Preliminary Action Report 
 
A
Administration & Realisation 
 
Includes: assets, liabilities, 
 
N
Realise assets, pay costs and 
outcome of examination and 
expenses and distribute to 

 

enquires 
 
creditors 
 
Investigation Decision       
 
 
 
 
 
1,2 

 
O
 
 
 
 
F
Closing 

 

On completion of realisation/ 
 
 
I
Investigation 
administration. Includes 
 
Enquires into the conduct of 

receipts and payments account 
 
C
bankrupt/officers where criminal 
 
and notice of release. 
 
E
offences or misconduct suspected 
1
 
 
 
 
            1 
Payment 
 

 
 
Protracted Realisations 
 
 
Record, review, realises and 
 
      
REPORT          REPORT 
Criminal 
Directors 
distributes when appropriate 
 
 
1,3
For DTI for 
Offences 
misconduct 
prosecution 
to  
 
to 
action in 
Prosecution     
Disqualification 
criminal 
To Official Receiver for 
Unit 
 
Unit 
courts 
disqualification action in civil court 
and criminal courts courts. 

KEY: 
1 = Primary Legislation 
 
2 = Secondary Legislation 
 
3 = Custom & Practice 

 
7.2 ENFORCEMENT 
 
7.2.1 As the quotation from the Competitiveness White Paper in para 3.14 makes clear, 
Ministers are committed to ensuring that misconduct does not go unpunished. The issue is 
how much resource should be devoted to enforcement to ensure that it is effective in picking 
up misconduct and deterring it in future, while not deterring beneficial enterprise.  
 
Prosecution 
 
7.2.2 Official Receivers submit reports on possible criminal offences to the Headquarters 
Prosecution Section. Each report is considered by the Prosecution Section in terms of whether 
it shows a basis for prosecution, meets service guidelines for presentation and should be 
referred to a prosecution authority.  Some cases are dealt with by prosecution section by way 
of a warning letter to the bankrupt or director without formal reference.  
 
7.2.3 The prosecution of possible offences reported by the Official Receiver is handled by 
DTI Solicitors, the Serious Fraud Office or other prosecuting agencies. They decide to 
prosecute if there is sufficient admissible, substantial and reliable evidence to provide a 
realistic prospect of a conviction, and it is in the public interest to do so. 
 
Disqualification 
 
7.2.4 Under the Company Directors Disqualification Act 1986 (CDDA), the OR in a 
compulsory liquidation or a private sector IP acting as voluntary liquidator, administrative 
receiver or administrator must report a director’s ‘unfit conduct’.  
 
7.2.5 Reports go to the Disqualification Unit (DU) of The Service. Acting for the Secretary of 
State, DU decides whether it is in the public interest to bring disqualification proceedings 
against that director.  
 
7.2.6 ORs submit a case to the DU for a decision on whether to issue a direction to proceed. 
If ORs identify elements of unfit conduct but do not consider that they provide a sufficient 
basis to secure an order, they complete a short form. 
 
7.2.7 IPs who identify unfit conduct in a voluntary liquidation, administrative receivership or 
administration submit a short formal report for consideration by the DU. If this seems to 
provide a basis for further action the DU investigates or passes the case to an OR to 
investigate. The investigator interviews the IP, looks at the company records, talk to 
creditors, banks and other interested parties. If the facts and evidence justify taking action 
against the directors on the basis that a court would more likely than not make an order, the 
DU (or the OR) drafts an affidavit to be sworn by the IP and instructs solicitors agents in the 
conduct of the case. 
 
7.2.8 Proceedings, whether by the Secretary of State or by ORs on the Secretary of State’s 
behalf, must be launched within 2 years of the corporate insolvency. If the court finds unfit 
conduct, it must make a disqualification order of between 2 and 15 years. 
 
  
Workload 

 
7.2.9 Prosecution reporting has held steady across the period covered by this QR with an 
average of 1,400 prosecution reports being submitted each year. Successful prosecutions have 
ranged from 404 to 504 per annum across the Review period. Additionally, warning letters 
have been issued at a rate of between 294 and 607 per annum where cases did not proceed to 

court. Disqualification proceedings fell slightly from around 1,400 proceedings during the 
first three years to closer to 1,300 in 1998/9 but rose again to 1497 in 1999/2000. 
 
7.2.10 This is a considerable increase over the early 1990s when there were fewer than 600 
proceedings. A National Audit Office (NAO) report in October 1993 called for improved 
performance in enforcement proceedings taken against unfit directors. This concluded that 
The Service were not fully meeting their objective of protecting the commercial world and 
the public at large against directors who abuse limited liability status. After taking evidence 
in January 1994, the Committee of Public Accounts expressed concern about The Service’s 
effectiveness in this area and made a number of recommendations for change. The Service 
undertook to take action to address the weaknesses identified. DTI made funds available from 
its programme budget to enable the DU to recruit around 40 Short Term Appointees (STAs) 
to step up investigation quickly and further resources have since been allocated.  
 
7.2.11 In their follow-up report in1999, NAO acknowledged the increase in the number of 
disqualification proceedings and found that the performance of ORs offices in the recording 
and reporting of unfit conduct was improved. A higher proportion of unfit conduct cases were 
being submitted for disqualification proceedings, reports were being submitted more quickly 
and were of a higher quality and variations between offices were much reduced.   IPs were 
also submitting better quality reports of unfit conduct more quickly. In addition action has 
been taken to speed up the disqualification process and to publicise disqualifications and 
successful cases. 
 
7.2.12 Most of the IPs and some others to whom we spoke felt that DU were not tough 
enough in taking action against misconduct but when pressed the numbers of those alleged to 
be "getting away with it" were relatively small say 3 or 4 in their direct experience.  Some of 
the cases were long past the date by which action could have been taken and may relate to the 
situation several years ago before The Service took action to improve performance. Some 
details have been passed on to the Chief Executive who will give feed back.  The Hotline also 
provides a route for complaints but it is proving difficult to get evidence in some cases, as 
some people are not willing to become involved. 
 
7.2.13 The figures at Annex 7.7 show the number of cases lost or withdrawn, with reasons, in 
comparison with orders secured. In 1999/2000 1540 orders were made and 144 (8.5%) lost or 
withdrawn. Leaving out cases where the director was too ill or had died or disappeared, the 
success rate is 94%. This suggests that The Service is not erring on the side of caution and 
that this success rate is about right. Though there is no reliable information as to whether 
some which might have been secured have been missed, the numbers of complaints made to 
us suggest that, if there are, the numbers are not large. 
 
 
 
The  Disqualification Hotline 
 
7.2.14 The Disqualification Hotline, set up in 1998, enables members of the public to report 
possible contravention of prohibitions by bankrupts and disqualified directors. 
During 1999-00 there 603 calls to the hotline. In the majority of cases there was no sufficient 
basis to pursue a detailed investigation. However, 75 cases were referred to the DTI solicitors 
or other enforcement agencies. In 1999/00 the first three convictions were obtained in cases 
arising from hotline complaints. 
 
DU Capacity  
 
7.2.15 IPs and solicitors were concerned at a lack of continuity because of turnover of STAs 
in the DU. Some had dealt with 2 or 3 different people in the course of a case. There is a 

learning curve and heavy training commitment with new STAs set lower targets in their first 
year. As explained above some 40 STAs were taken on to enable DU to ensure that action 
was taken in all cases where it was justified. The intention was to replace these with 
permanent staff but the pressure on DTI's and hence The Service's running costs has 
prevented this from happening. A new unit has been set up in Manchester to enable The 
Service to build up some capacity at lower cost and to develop qualified permanent staff; 
Edinburgh handle some cases in NE England and more IP cases are now being allocated to 
ORs to investigate and initiate proceedings. 
 
7.2.16 The problem remains of how The Service would respond quickly to an increase in 
caseload without cutting back on enforcement. After the first NAO report The Service carried 
out a small pilot in which IPs, solicitors and Counsel were invited to draft affidavits on the 
basis of statements of fact prepared by the DU. This trial was not a success with reports of 
poor quality, difficulties in meeting deadlines and interface problems. It was not however a 
fully structured test in that it involved some 20 cases and there was no opportunity to allow 
working relationships to develop. The solicitors who act as agents (through Treasury 
Solicitors) in taking disqualification cases to court are now much more experienced and 
undertake some supplementary enquiries where necessary.  They also understand standards of 
evidence. Costs are now very competitive for contracts for blocks of work from Government 
organisations who pay promptly. We also came across examples of solicitors who had built 
up units to undertake similar investigations of alleged misconduct in other areas.  
 
7.2.17 We suggest that The Service consider further structured trials in using solicitors 
to carry out investigations - perhaps extending the contracts of solicitor agents
 -which 
might offer more flexibility and continuity as well as local operation. This would however 
entail some reduction in the number of cases (or increase in costs) at least initially, though 
experience of the use of solicitor agents suggests that this would improve in time. Some form 
of trial is needed to test the extent. 
 
 
 
 
 
 
 
IP Reports 
 
7.2.18 IPs are not required to investigate cases but only to report where they see indications 
of criminal offences or misconduct whereas ORs follow up from initial examination and  
investigate further before submitting reports. The number of OR reports which lead to 
proceedings has steadily improved over the past three years to an acceptance rate of 96% in 
1999/2000. The number of IP reports followed up is, as would be expected, considerably 
lower (see Annex 7.8) because they are not based on any in-depth investigation.  The DU 
carry out the investigation of reports submitted by IPs. All cases are investigated to the same 
depth.  
 
7.2.19 Several IPs told us that they felt that DU do not always investigate fully enough, that 
there is a lack of continuity due to turnover of STAs and that insufficient feedback is given to 
IPs on decisions on whether to prosecute or to disqualify directors.  NAO did not report any 
problems in the extent of DU investigation. DU told us that procedures have been changed so 
that better feedback should now be being given and felt that in part complaints about lack of 
action arose because some IPs reports are inadequate. In many cases the reported failure is of 
a minor nature or insufficiently robust to proceed. The investigation acceptance rate of 25% 
of IP reports is broadly consistent with the proportion of cases in which, according to 
published SPI surveys of its members, the principal cause of failure was mismanagement. 

The proportion of IP cases taken to proceedings is comparable with the proportion of OR 
(compulsory liquidation) cases.  
 
7.2.20 We looked at some IP reports and feedback letters in 12 cases rejected without further 
investigation and 11 following further investigation. We concluded that: 
 
•  In 7 cases rejected without further investigation, the reasons for not taking further action 
could have been explained more fully. There were 3 examples where the explanation 
given was that some elements of unfitness existed but that the allegations were not 
sufficient to merit an application for disqualification.  
 
•  Letters sent following further investigation all contained a full explanation of the decision 
not to proceed.  
 
7.2.21 We recognise that some of the IP comments reflect past experience; that DU staff are 
now encouraged to discuss cases with IPs; and that in recently re-issued guidance IPs are 
encouraged to contact the Unit if they are unhappy with the decision which has been made or 
the reasons which have been given for that decision. We underline the importance of The 
Service ensuring that all decisions are adequately explained to IPs to help them to 
improve the quality of their reports and of IPs contacting the DU when they feel that a 
case should have been pursued.  
 
 
 
 
 
 
 
7.2.22 There is also an issue of timeliness in the submission of IP reports given the time 
limits within which action must be taken. This is monitored by IPCU and action taken where 
performance is not satisfactory. NAO drew attention to the delays in bringing cases which is 
compounded by further delays in Court proceedings before disqualification orders are 
actually made.  The current Insolvency Bill seeks to allow the Secretary of State to accept 
undertakings from directors who acknowledge misconduct to agree not to act in the 
management of a company for a specified period up to 15 years with the same effect as a 
Court Order. As well as saving costs, this should free up court time to deal with defended 
cases. 
 
Attitudes to disqualification 
 
7.2.23 NAO surveyed 500 company directors for their report. Some of these quoted similar 
experiences of seeing people start up again next day; some had personally lost money as a 
result of actions of directors. The Service explained that evidence to justify proceeding was 
not available in support of many of the assertions made. NAO detected a view that while it 
might be legal to start up so soon, it was morally wrong.  
 
In their survey NAO found that  
 
-  90% - felt disqualification was necessary but that  
-  61% - The Service was not successful in disqualifying all who should be 

64% - disqualification was not an effective deterrent to misconduct 

65% - disqualification was not effective in protecting the public. 
 
7.2.24 Directors of businesses to whom we spoke in general conversation about their 
experience as creditors said that their attitude depended on whether they felt that there had 

been a deliberate attempt to defraud or sheer incompetence. Small businesses often felt 
sympathy for those who had failed through bad luck.  
 
7.2.25 Disqualified directors (20) told NAO the risk of disqualification had not affected their 
behaviour while IPs (32 of 51 -60%) did not consider that the threat made directors any better 
at running their companies. The report says nothing however about whether the experience of 
disqualification was likely to influence future behaviour. 
 
Disqualification as a deterrent 
 
7.2.26 In their 1999 Report, NAO attempted to estimate the benefits to creditors of 
disqualification. They pointed out that if there were no disqualifications, confidence in the 
market would be undermined. At the other extreme, if all directors of failed companies were 
disqualified regardless of conduct, genuine enterprise and risk taking would be inhibited. 
They based their calculation on the size of debt in failed companies and the extent to which 
failed directors found guilty of misconduct might have gone on to cause further losses if not 
banned from acting as directors for an average of 5 years. They estimated that the potential 
benefit could amount to £30mpa but reduced this to £11m because of the time it took (up to 3 
years) to secure a disqualification. On this basis, the 800 extra disqualifications secured 
between 1995/6 and 1997/8 than in the 3 previous years had direct benefit to creditors of 
some £16m. 
 
7.2.27 If this were the extent of the benefit, the value for money of disqualification would be 
questionable given that the cost of the work in 1999/2000 was some £22m but the NAO 
report went on to point to the significant unquantifiable benefits such as the deterrent to other 
directors who might have been tempted; the domino effect of triggering other company 
failures - no figures were available but The Service suggested that10% of failures result from 
other failures; and improvement in standards of stewardship to the overall benefit of 
creditors. 
 
7.2.28 On the other hand, there may also be dis-benefits in terms of jobs and wealth creation 
lost if some who would have started businesses are deterred from doing so. It was also 
suggested to us that it is beginning to be difficult to find non-executive directors and that this 
might be a particular problem for SMEs if experienced business people late in life who might 
take non-executive or advisory roles felt that there would be a stigma in being seen to have 
been associated with a failed company. If their advice is to be worthwhile, non-executives 
must take their role seriously but it is also important to take into account how much a non-
executive can be expected to know in deciding who to take action against. 
 
7.2.29 The Service is considering whether it is possible to build on the NAO cost benefit 
analysis and to develop impact measure(s) by undertaking a formal survey to elicit facts 
rather than the anecdotal views that have been given to us. This should include creditors, 
whose views do not often seem to be reported. 
 
7.2.30 We were told that the UK is almost unique in having provisions for the 
disqualification of directors, though some other countries are showing an interest in it. We 
also note that CDDA is not covered by the review of enforcement under the Company Law 
review but that an arrangement allowing the Secretary of State to accept a disqualification 
undertaking has been included in the Insolvency Bill. 
 
Disqualification is an important deterrent and we welcome the proposed survey. We 
suggest that The Service might also look at the balance between the promotion of 
enterprise and the need for a fair and effective regulatory framework in this activity as 
it has done for others. 
 


7.2.31 Prevention of problems is perhaps more important than the "cure" of disqualification. 
There are no formal requirements for training before setting up a company as in Germany.  
"A Fresh Start" canvassed opinions on whether those whose businesses failed through 
incompetence or mismanagement should be required to undergo training before starting again 
as happens in Canada.  The establishment of the SBS recognises the extent to which those 
running SMEs need support and advice. We return to this question of the extent to which The 
Service should be involved in giving advice in Section 7.6.  
 

 
Annex 7.7 
ORDERS LOST OR WITHDRAWN 
 
 
 
1999/ 
1998/ 
2000 
1999 
ORDERS MADE 
1540 
1284 
ORDERS LOST 
20 
21 
PROCEEDINGS 
124 
114 
WITHDRAWN 
 
 
 
 
Reason for Lost Cases 
Unable to prove case 
Unable to locate defendant 
Death of principle defendant 
Reasonable to rely on accounting records 
Strike out due to time 
Marginal case - costs shared 
 
Reason for withdrawal 
Strength of defence 
Unable to locate or trace defendant 
Not in public interest after Counsel advice 
Ill health 
Human rights issue over delay (6 years) 
Death 
Order made under s10 CDDA 1986 
IP license revoked - evidence tainted 
IP evidence poor 
IP lost records 
Accounting records found (OR) 
Marginal case - no costs 
 

 
 
Annex 7.8 
 
REPORTS SUBMITTED TO THE INSOLVENCY SERVICE DISQUALIFICATON 
UNIT OF POTENTIAL UNFIT BEHAVIOUR  
 
REPORTS FROM IPs 
 
YEAR 
DISQUALIFICATION 
VETTING 
NO FURTHER 

ENDED 
REPORTS 
DECISIONS 
INVESTIGATION 
ACCEPTED FOR 
31 /3 
RECEIVED 
MADE 
 
INVESTIGATION 
 
 
 
 
 
1998 
3195 
3029 
2311 
24% 
 
 

 
 
 
 
1999 
3302 
3218 
2351 
27% 
 
 
 
 
 
 
2000 
3311 
3302 
2461 
25% 
 
 
 
 
REPORTS SUBMITTED BY OFFICIAL RECEIVERS 
 
 
Number of 
Total No of 
Total % of 
 
Reports 
Reports 
Reports 
 
submitted 
Accepted 
Accepted 
 
 
 
 
1997/98 
344 
311 
90% 
 
 
 
 
1998/99 
329 
307 
93% 
 
 
 
 
1999/2000 
278 
267 
96% 
 
 
 
 
 
 
 

  
7.3 BANKING AND INVESTMENT 
 
7.3.1 Trustees and liquidators, including the Official Receiver, must pay funds from the 
realisation of assets into the Insolvency Services Account (ISA) at the Bank of England 
within 14 days in bankruptcies and compulsory liquidations or immediately for amounts of 
£5,000 or more. In voluntary liquidations, payment must be made every 6 months of the 
balance held less any amount immediately required. Liquidation funds in excess of £2,000 
automatically receive interest at a rate of 3.5% a year for the benefit of the estate. 
Alternatively, at the liquidator’s request, funds deposited may be invested for the benefit of 
the estate in Treasury bills or other Government securities. No investment provisions apply to 
bankruptcies but provision to do so is being made in the current Insolvency Bill. 
 
7.3.2 The Central Accounting Unit (CAU) is responsible for insolvency estate banking and 
investment within The Service, and operates under a Service Level Agreement following a 
successful in-house bid for The Service’s banking and investment function. It issues account 
statements to insolvency practitioners automatically to coincide with the six-monthly 
anniversary of the bankruptcy order, winding up order or resolution for voluntary winding up, 
in addition to sending account statements on request.  
 
7.3.3 When the banking function was market tested in 1993, only one private sector bid was 
received. The bid was only marginally less expensive taking into account all costs over a five 
year period than the in-house bid (£400k) so the in-house bid was accepted under a service 
level agreement which is still in force.  
 
7.3.4 Since then, banking activity has increased significantly with the number of cheque 
transactions rising from close to 122,000 in 1995/96 to 166,239 in 1999/2000. Investment 
transactions have fluctuated from 7,600 to 4,700 during the period. Account statements have 
fallen considerably from a high of 30,800 in 1995/96 to 22,780 in 1999/00. 
  
7.3.5 CAU liaise with customers through a User Group which meets twice a year. When we 
met the Group, they all confirmed the substantial improvement in the operation of the 
banking arrangements. The user group is an excellent forum for identifying and responding to 
customers needs. Their main concern, which was also voiced by most of the external 
consultees, was the need for the ISA. Surpluses are generated despite the squeeze on The 
Service's running costs; the high level of fees reduces the return to creditors; and IPs are now 
regulated and bonded. The Bank of England told us that the ISA is now unique and 
something of an anachronism, other similar accounts introduced in the 18th century as a 
means of regulation having been closed. We return to this later. 
 
 
 
 
 
 
 

 
7. 4.  INSOLVENCY PRACTITIONER REGULATION 
 
7.4.1 Insolvency Practitioners (IPs) are appointed to act in a range of insolvency proceedings 
e.g. as trustees in compulsory bankruptcies; liquidators in compulsory and voluntary 
company liquidations; administrators and administrative receivers. They also handle 
individual and company voluntary arrangements. 
 
7.4.2 Under the Insolvency Act 1986, only authorised persons may act as IPs. They are 
authorised on the basis of experience and competence, are subject to regulations and must 
hold a security bond for the proper performance of their duties. Authorisation may be granted 
by the Secretary of State or by a professional body recognised by the Secretary of State which 
regulates the conduct of its members and issues and withdraws licences. IPs operating before 
1986 were grand-fathered into the profession according to experience. Entry since has 
required formal qualification. The seven Recognised Professional Bodies (RPBs) account for 
some 95% of all authorisations. There are some 1800 IPs of whom about 1100 actually take 
appointments. 
 
7.4.3 The regulatory structure is:  
 
•  The Secretary of State has powers to authorise practitioners directly or to delegate that 
power to professional bodies. 
 
•  The Service as agent for the Secretary of State monitors IPs who are authorised directly 
by the Secretary of State. 
 
•  The  Service as agent of the Secretary of State accredits those professional bodies which 
meet criteria of professional competence. 
 
•  The RPBs so recognised are responsible on terms agreed in Memoranda of Understanding 
with The Service  - for the professional and ethical standards, monitoring and discipline 
of those members who practise as IPs. 
 
7.4.4 The bodies currently recognised are:  
 
•  The Institute of Chartered Accountants in England and Wales. 
•  The Insolvency Practitioners Association. 
•  The Law Society.  
•  The Institute of Chartered Accountants of Scotland.  
•  The Association of Chartered Certified Accountants.  
•  The Institute of Chartered Accountants in Ireland.  
•  The Law Society of Scotland.  
 
7.4.5 Those who are not members of an RPB can apply to the Secretary of State for 
authorisation. Such applications are handled by The Service’s Insolvency Practitioners 
Section, which also regulates the performance of Secretary of State authorised IPs, 
investigating cases of possible impropriety or dishonesty. A number of RPB members also 
choose this route. Some 150 IPs are authorised directly. 
 
7.4.6 Applicants to, or IPs authorised by, the Secretary of State who are served with a notice 
of intention to refuse an application or to withdraw an existing authorisation – because they 
are not considered fit and proper or they do not meet the requirements of the Insolvency 
Practitioners Regulations (or both) - can require their case to be referred to the Insolvency 
Practitioners Tribunal for investigation. The Tribunal, made up of private sector individuals 

with insolvency and legal experience, must normally report its findings to the Secretary of 
State within 4 months of the date of referral. Its findings are binding. 
 
7.4.7 The Service’s Insolvency Practitioner Compliance Unit (IPCU) makes regular 
monitoring visits to the RPBs and their monitoring agents to ensure the effective regulation of 
the insolvency practitioners they license, as well as to IPs licensed by the Secretary of State. 
IPCU also monitors practitioners’ accounts for compliance with the regulations, in particular 
those relating to the payment of funds to the Insolvency Services Account (ISA), and 
submission of disqualification reports. 
 
7.4.8 The regulatory arrangements were reviewed in 1996/7 by the Authorising Bodies with 
terms of reference,  
 
"to review the current state of regulation in the insolvency profession and, 
  in the light of that review, to consider whether there are ways in which, in 
  the public interest and in the interest of all of those affected by insolvency    
  proceedings, such as regulation could be made more efficient and effective".    
 
The key conclusion of the report in 1999 was that a public interest body, the Insolvency 
Practices Council, with members drawn from inside and outside the profession be set up to 
improve transparency in setting standards for insolvency practice. Among the other 
recommendations was that The Service be relieved so far as possible from its present duties 
in relation to those directly authorised by the Secretary of State, so that it could concentrate 
on its functions as regulator of regulators within the system. 
 
7.4.9 The IPC was charged with: 
 
•  Identifying issues which ought from a broad public interest perspective to be considered      
by the Best Practices Liaison Committee of the authorising bodies. 
•  Making recommendations to that Committee on matters which should appropriately be 
reflected in professional and ethical standards for the insolvency profession. 
•  Considering whether professional and ethical standards are satisfactorily enforced and  
      observed. 
•  Publishing a report annually on its activities. 
 
 
 
 
 
 
 
 
 
7.4.10 According to the Report of the Working Party, direct authorisation of IPs by the 
Secretary of State was intended as an interim measure to offer a route for those who were not 
members of RPBs and so could not be authorised by them. RPBs are now able to authorise 
persons who are not members and membership of IPA is open to all who wish to practice 
which raises the question of whether direct authorisation should continue to be available. 
80% of directly authorised IPs are IPA members. Two potential anomolies were cited - that 
the Secretary of State could in theory authorise applicants who had not passed the required 
examinations and that there is only one sanction – revocation of authorisation instead of the 
range of sanctions available to RPBs.  
 
7.4.11 Neither of these however seems to be a problem in practice. Authorisation without 
examination has happened only on rare occasions where the applicant was able to 

demonstrate exceptional experience. We were told by the IPCU that monitoring is very well 
done. Advice is given on where improvement is needed and time allowed to improve. On 
behalf of the RPBs, the Joint Insolvency Monitoring Unit (JIMU) look at value for money 
and raise a query if poor. Creditors can also complain. RPBs have range of options including 
fines as their members responsibilities go wider than insolvency. IPCU follow up persistent 
poor reporting with the RPB or direct if the IP is authorised by the Secretary of State.  
 
7.4.12 We understand that IPC intend to address the issue of monitoring and the effectiveness 
of sanctions. If this establishes common standards there would seem to be no particular 
advantage in the Secretary of State continuing to authorise individuals and would enable The 
Service to concentrate on its role of regulating the regulators free from any conflict with its 
own role as authorising body. 
 
7.4.13 Residual powers would have to be retained for two reasons. First to enable the 
Secretary of State to step in if it appeared to him that barriers to entry to the profession were 
being erected and second to allow the authorisation of practitioners from other EU states as 
we understand that the terms of the relevant EU directive are not compatible with an entrance 
examination.  
 
7.4.14 The IPA have said that they would be prepared to take on the role. We understand 
from The Service that there are several ways in which this could be done: 
 
•  By designating IPA as a "competent authority" - which would involve them adopting the 
rules applying to the SoS, rather than those that they apply to their current membership.  
 
•  By the IPA persuading SoS authorised IPs to transfer to it. 
 
•  By changes in the legislation.   
 
We agree that it would be in line with current views on regulation to hand over this 
function to the profession within the established framework. IPA have told us that they 
would be willing to take it on and we intend to pursue with them in Stage 2 how they 
might do so. 
 
 
 
IP fees 
 
7.4.15 Although not strictly within our terms of reference, we note that many of those 
consulted were concerned at the extent to which IP fees reduced the funds available to 
creditors. We understand that the remuneration of IPs was the subject of a remit to a separate 
working party convened by the Vice Chancellor under the Chairmanship of Mr Justice Ferris 
which reported in July 1998. Its recommendations covered a number of areas directed to 
improving the framework for formulating, submitting and approving remuneration, and 
emphasising the need for transparency and accountability, and demonstrating value. The IP 
representative body issued interim guidance covering these matters: the working party has 
still to consider their effectiveness and whether more needs to be done to counter excessive 
claiming. 
 
7.4.16 In Scotland the Accountant in Bankruptcy supervises all sequestrations and we gave in 
para 7.1.21 the information on the costs of administration ie fees and outlays as a proportion 
of receipts for cases handled by IP trustees, agents and Case Management Branch that are 
published in his Annual Report.  This information is not published in England and Wales. We 
suggest that consideration is given to publishing similar average information to improve 
transparency.
 We suggested in para 7.1.23 further consideration of the scope for charging 

scale fees in cases where ORs appoint an IP from the rota. We also question whether the 
same qualifications are needed to handle individual bankruptcy as for complex corporate 
insolvencies and rescues. The Service has developed an NVQ for its own staff and we 
wonder whether it or a similar qualification should be adopted more widely. 
 
 
 

 
7.5 POLICY ADVICE TO MINISTERS 
 
7.5.1 The Service provides advice to Ministers on domestic, European Community and 
international insolvency policy. The Policy Unit also gives advice to other Government 
departments and agencies on insolvency aspects of their policies (e.g. rail privatisation, 
environmental policy). 
 
7.5 2 Though it is unusual for an agency to have such major policy responsibilities as The 
Service, there are no hard and fast rules as to whether responsibility for policy should lie with 
agencies or parent departments.  Much depends on the nature of the policy.  Companies 
House for example, carries out a limited number of specific functions under the Companies 
Acts but the coverage of the Acts is much wider.  In that case, policy therefore rests with 
DTI.  The Radiocommunications Agency manages the bulk of the UK's civil radio spectrum 
and has a significant policy focus.  
 
7.5 3 Insolvency is relatively specialised and locating the policy function elsewhere in DTI 
could result in a dilution of the expertise. On the other hand the framework for dealing with 
financial failure is a significant influence on entrepeneurial activity and it is essential that The 
Service keeps abreast of wider DTI policies. We note that despite the high policy content of 
the The Service's work, the Steering Board does not have any input to policy development 
and we suggest that its role should be extended to include discussion of strategic policy.  
 
Domestic Policy 
 
7.5.4 In a major speech to the American Experience conference in July 1999, The Secretary 
of State for Trade and Industry, Stephen Byers, called for a change in attitudes to encourage 
responsible risk taking.  This focuses on the balance between rehabilitation of debtors and 
ensuring that misconduct is penalised. The 2 major reviews described in Section 3 above go 
to the heart of this debate. The Insolvency Bill currently before Parliament supports the 
enterprise agenda in that its central feature is the provision of an option of a moratorium on 
creditors so that small companies in financial difficulty have a breathing space to put together 
a rescue plan and agree a voluntary arrangement with their creditors. It also aims to speed up 
the procedure for disqualifying directors; to allow for the payment of interest on bankruptcy 
estate funds held in the Insolvency Services Account; streamlines the process for reporting 
criminal offences by IPs; and enables the UNCITRAL cross-border model insolvency law 
(see below) to be brought into effect. In all of these, The Service has taken a central role and 
formulated the proposals.  
 
7.5.5 Some of those involved in the reviews have commented on the lack of data on the 
operation of insolvency processes and we endorse the suggestion that The Service should 
commission research to underpin the development of policy in future. 
We have not 
always been able to get the data we would have liked to explore some of our ideas without 
asking The Service to undertake special exercises e.g. on returns to creditors, case data 
broken down by levels of indebtedness. The Service should take the opportunity of the 
improved IT systems to review the collection of data from its own activities and discuss 
data collection with the Association of Business Recovery Professionals (ABRP) which 
collects data and publishes statistics on IP activities. 
 
International Policy  
 
7.5.6 The Service continues to be at the forefront of several major initiatives to develop 
coherent and more predictable insolvency systems and procedures to protect the business 
community and consumers in the European Union (EU) and more widely. These contribute to 
DTI's objective of creating strong and competitive markets at home and abroad. 
 

7.5.7 In the EU, The Service were involved in the negotiation of and are now responsible for 
ensuring the implementation by May 2002 of the EU Council Regulation on Insolvency 
Proceedings adopted in May 2000. This fills a gap in the legislative framework of the single 
market. It applies to individual and corporate debtors and defines which Courts have 
jurisdiction in cross border insolvencies; provides a framework for dealing with assets in 
other EU countries; and enables IPs to operate in other EU countries. By establishing 
jurisdictional bases, powers and duties of office holders and rights of creditors for 
insolvencies across the EU it should facilitate and reduce the costs of administering them. 
 
7.5.8 In UNCITRAL, The Service have contributed to the negotiation of a model law which 
aims to facilitate the process of obtaining recognition of foreign insolvency proceedings; to 
introduce a greater degree of certainty into the assistance the courts can give to a foreign 
office holder and the stage at which such assistance can be given; to set out the entitlement of 
and basis for foreign creditors claims; and to require courts with insolvency jurisdiction to co-
operate with each other. The current Bill seeks powers to implement the model law by 
regulation. 
 
7.5.9 More generally, the Chief Executive is chairman of the International Association of 
Insolvency Service Regulators whose members and observers contribute to World Bank 
projects to develop insolvency frameworks in and host visits by representatives from 
emerging states. The work has focused on enhancing transparency and promoting standards 
of best practice; strengthening country policies, financial systems and institutional 
foundations; and reforming international fora. It is now being promulgated through a series of 
consultation workshops in each region after which a set of Principles and Guidelines will be 
finalised and published.   
 

 
7.6.  PROVISION OF ADVICE 
 
7.6.1 Many responses to the consultation commented on The Service’s role in providing 
advice on bankruptcy and corporate insolvency.  There is a comprehensive series of 
publications, a website and a person to handle inquiries and give general advice in each OR 
Office. The general view was that specific advice on action to be taken in individual cases 
should be avoided because of potential conflicts of interest but that The Service should work 
with intermediaries to ensure that they could provide guidance to their clients.  
 
7.6.2 There are two aspects - general advice on the options available to individuals or 
companies in financial difficulties and specific advice on which option to choose.  
 
7.6.3 The Service has a clear role in providing general advice and has several channels for 
providing it - see Section 5 for details and plans for development. 
 
7.6.4 When it comes to giving advice on a specific course of action by an individual, there is 
a potential conflict of interest in that a person choosing bankruptcy will be subject to 
examination by The Service. In this situation The Service needs to be able to refer people to 
others who can give that advice and to work with these organisations to ensure that if 
financial difficulties arise they are given good advice in which route to take. The Service's 
Charter Mark leaflet sets out what The Service cannot do in terms of giving specific advice 
and in redrafting the leaflet The Service intend to add a brief description of organisations that 
provide such advice and how to contact them. They will be drawn from the list at Annex 7.9. 
 
7.6.5 The Service's activities in this area need to be joined up with those who already provide 
this advice, whether in government or elsewhere. The responsibility for giving advice to 
business goes well beyond The Service and is a key element in the agenda of the Small 
Business Service (SBS). For businesses the SBS and through them, others who are involved 
in giving advice to business, would be the obvious starting place. Prevention is better than 
cure and SBS's aim will be to help as many as possible survive but an SME in terminal 
difficulties will need advice on the options - bankruptcy/winding up, CVA etc. Staff in local 
SBS franchises will need to be fully briefed and have a contact point in the local OR office if 
clarification is needed.   
 
7.6.6 As far as advice to businesses, whether incorporated or not, is concerned we 
recommend that The Service develop links to the SBS both nationally and at the local 
level through OR Offices to define the appropriate role for The Service. 
 
7.6.7 For personal bankrupts and sole traders the picture is less clear cut. The Bankruptcy 
Advisory Service is a specialist organisation which already works closely with The Service. 
More generally we have identified a need for greater clarity on sources of advice and to 
ensure that those giving advice are properly briefed and trained to enable them to advise 
individual debtors. Interested parties include the CABs; the Money Advice Centres Network; 
Consumer Credit Advisers; DTI Consumer Affairs Directorate and the National Debt line - 
see list at Annex 7.9 The Service is already considering how to develop closer relations with 
these and similar organisations.  
 
 
We shall work with them in Stage 2 to define roles more clearly and the kind of 
information to be provided.
 
 
7.6.8 Advice tends to be directed towards debtors. The Service’s leaflets includes advice to 
creditors but in their dealings with intermediaries, it is important that the needs of creditors as 
well as debtors are covered. 

 
Annex 7.9 
 
SERVICES AVAILABLE TO THOSE EXPERIENCING FINANCIAL DIFFICULTY 
 
THE SMALL BUSINESS SERVICE (SBS) SINGLE GATEWAY  
 
The SBS is designed to provide small and medium enterprise with a single source of high 
quality information and advice. It was established in April 2000 to help small businesses and 
will seek to do this by being their voice within Government; helping them deal with 
regulations including providing regulatory advice; and to help deliver an enhanced and more 
coherent support service to small business.  
 
THE SBS ELECTRONIC REGULATION SERVICE 
 
This aims to help small firms access regulatory information at a time and in a way that is 
most convenient to them. SBS aims to make maximum use of its IT to present information in 
new ways and develop new services. This initiative is complementary to the broader work on 
simplifying regulations with the overall aim of reducing burdens on small business. 
 
THE BUSINESS DEBTLINE 
 
This is a national telephone help-line, for micro businesses experiencing financial difficulty. 
The scheme has been sponsored by seven banks together with the DTI and will provide an 
initial telephone consultation providing practical advice, followed by a help pack. This will 
mean that any small business and the self-employed facing financial hardship will be able to 
access free, independent and confidential advice.  
 
THE BRITISH BANKERS ASSOCIATION 
 
The British Bankers Association (BBA) is the leading trade association for the banks 
operating in the UK and has over 300 member banks from more than 60 countries. There are 
also a number of major law and accountancy firms who are professional associates. 
 
The BBA put together a statement of 12 Principles that came into operation on 1 July 1997. 
The principles were drawn up as part of a commitment on the part of banks to work with 
business to see if there are ways of overcoming the difficulties that businesses come up 
against from time to time. The emphasis is also on co-operation, which is best served if 
businesses take early advice and action to resolve difficulties before they turn into a crisis. It 
is now a requirement under the Banking Code that banks, as a matter of policy consider cases 
of financial difficulty and mortgage arrears sympathetically and positively. Again the 
emphasis is placed on co-operation and the need for the customer to advise the bank of any 
difficulty. 
 
 
 
 
 
 
WWW.PAYONTIME.CO.UK 
 
This site has been set up to help businesses recover funds owing to them from debtors – 
getting their invoices paid. The Better Payment Practice Campaign web site has set up this 
site.  
 

 
WOMEN’S ONLINE BUSINESS CENTRE 
 
A new Website offering advice and information for women setting up or expanding their 
business. It was announced on the 5 July 2000 and will have links to other useful guidance 
and on-line discussion forums. It is being developed by the SBS and will enhance the existing 
SBS advice service for small businesses. 
 
LAWYERS FOR YOUR BUSINESS 
 
The Law Society Website hosts ‘Lawyers for Your Business’ (LFYB).  This page enables the 
user to assess a business’s legal needs and offers a free consultation with a local solicitor. 
LYFB represents some 1400 firms of solicitors in England and Wales who have come 
together to ensure that businesses, especially the smaller owner-managed ones, get access to 
sound legal advice when they need it.  
 
BANKRUPTCY ADVISORY SERVICE 
 
BAS aims to support people through the stress of debt and bankruptcy. It is run by Gill 
Hanky who has personal experience of losing a business and offers in return for a 
subscription of £15, a wide range of bankruptcy-related services including practical advice by 
telephone, in writing or personal interview; negotiation with banks, building societies and 
other creditors; access to expert advice at affordable prices. BAS has its own accountant and 
mortgage broker and works closely with a leading firm of insolvency lawyers. 
 
THE CONSUMER CREDIT COUNSELLING SERVICE (CCCS) 
 
‘Balancing the needs of consumers in debt and their creditors’. 
 
The CCCS is a registered charity dedicated to providing free, confidential counselling and 
money management assistance to financially distressed families and individuals. The 
individuals receive counselling, the costs of which are borne by the creditors, agreeing to pay 
CCCS 15% of the recovered debt. They provide counselling on budgeting; advice on the wise 
use of credit and, where appropriate, achievable plans to repay outstanding debts. The CCCS 
is a non-profit making organisation whose services are supported by creditors and the 
business community through donations and contributions. 
 
 
 
 
 
 
NATIONAL ASSOCIATION OF CITIZENS ADVICE BUREAUX 
 
The Citizens Advice Bureau service offers free, independent and confidential advice to over 5 
million people each year, from more than 700 locations throughout the UK. NACAB is a 
registered charity, relying on statutory grants and charitable donations to undertake support 
and service development. They have embarked on a new programme called CABnet 2000 to 
transform their service through the application of IT. This will be a national network of 
integrated computer information and advice systems to be in place by 2003.  
 
 
THE NATIONAL DEBTLINE 
 

The National Debtline provides a debt counselling service for any person facing financial 
hardship. By calling the debtline you will be able to access free, independent and confidential 
advice.  
 
 
THE COMMUNITY LEGAL SERVICE 
 
This service was set up with the aim of delivering legal advice relating to housing, debt, 
employment and welfare benefit issues in a structured, cohesive way. It establishes a 
framework under which solicitors work with advice professionals, volunteers and fund 
providers to develop referral networks. These local networks bring together providers of legal 
help and advice to build better services for the public.  
 
 
THE CONSUMER ADVICE CALL CENTRE 
 
The purpose of this project is to set up three pilot call centres to test ways of providing access 
to high quality consumer advice. This project will also be used to test whether a national 
consumer helpline would be practical and add value. The three pilot call centres will be run in 
the autumn (October/November) this year. Once the pilots have been run they will be 
evaluated and the results fed into the setting up of a national help-line. 
They will also be seeking funding from Treasury for the establishment of a Money Advice 
Call Centre (along the same lines as the Consumer Advice Centre) in autumn next year.