Last week the FCA announced it has proposed to ban debt packager firms from being paid to refer their clients onto others such as Insolvency Practitioners (IP)and other providers of debt management solutions.
 
Although they are regulated to provide debt advice, these debt packager firms still rely on the referral fees they get paid when passing on their clients to IPs or debt management agencies. A fee for an IVA referral for example, can make these debt packagers a substantial amount of money. Because of this, there is a conflict of interest between the debt packagers giving the correct advice that is in the best interest of their clients to making a referral that can make themselves more money.

The FCA is concerned with the conduct of some of these firms and has stated they have seen examples of debt packagers appearing to have “manipulated customers’ details” so that they meet the conditions for an IVA or other unsuitable debt solutions. This unfair advice is given using “persuasive language” without providing the customer a full explanation of the debt solution and risks of the IVA process or other insolvency process.

The new rules being proposed would mean a ban for the debt packagers to accept the referral fees for passing on their clients to other debt solutions providers; hence removing the element of pushing a customer down a specific more lucrative route.
 
Sheldon Mills, Executive Director of Consumers and Competition at the FCA, said:
“Debt advice needs to be good quality and meet the needs of consumers. Too often people who contact debt packagers for help are being given advice that could cause them harm. This is unacceptable, especially as people seeking debt advice are often in vulnerable circumstances.
“Our proposals will address the inherent conflict of interest present in the debt packager business models. This will help protect consumers who need support managing their debts.”

The FCA is committed to ensuring consumers are provided with an expert debt advice service which helps them manage their debts and ensures they have access to a suitable debt solution when needed. The FCA are working with regulators of IVA’s and other debt solution providers and have suggested that the new rules could come into force by April 2022.

The following figures are part of a monthly series published by the Insolvency Service to supplement quarterly National Statistics, with the aim of providing more up to date information as we move into a new norm after the effects of COVID-19.

During the pandemic overall numbers of company and individual insolvencies were low however CVL numbers are now at their highest and resemble what it was like pre-pandemic. The numbers for other insolvency procedures still remain lower however this is likely to be partly driven by government measures that were put in place to support businesses and individuals during the pandemic which are now coming to an end or have already ended.

England and Wales, September 2020 to October 2021, Not seasonally adjusted
There were 1,405 registered company insolvencies in October 2021 in England & Wales

• 63% higher than the number registered in the same month in the previous year (864 in October 2020)
• 5% lower than the number registered two years previously (1,480 in September 2019).

These figures are made up as follows:

Creditors Voluntary Liquidations = 1,248 (85% higher than in October 2020 and 19% higher than in 2019)
Compulsory liquidations = 46 (31% lower than October 2020 and 81% lower than 2019)
Administrations = 95 (8% lower than 2020 and 40% lower than 2019)
Company Voluntary Arrangements = 16 (24% lower than 2020 and 56% lower than 2019)
Moratorium = 15 between June 2020 & October 2021
 

Detailed figures and information of monthly company insolvency data for England & Wales can be found at the Insolvency Service here

Could a Moratorium give you the necessary breathing space to save your business?  Find out  here.   


Want to know more about each Insolvency Procedure listed above? click each link below for our insolvency advice pages:

Company Voluntary Liquidation (CVL)
Compulsory Liquidations or winding up by the court
Company Voluntary Arrangement (CVA)
Company Administration 

In a liquidation of a company the assets are collected and sold by the appointed Insolvency Practitioner (IP).  The proceeds are used to pay creditors, in a specific order i.e.

1. Fixed charge creditors from fixed charge assets
2. Expenses of the liquidation
3. Liquidators fee
4. Preferential creditors
5. Prescribed part
6. Floating charge creditors
7. Unsecured creditors
8. Interest to unsecured and preferential creditors
9. Shareholders

The courts can order a compulsory liquidation (called a winding up) or the directors of the company may decide to put the company into a voluntary liquidation.  In a compulsory liquidation, HMRC’s Official Receiver initially acts a liquidator.  However an IP may be appointed at a later date.  Whereas in a voluntary liquidation the liquidator (the Insolvency Practitioner) can be chosen.

Before a voluntary liquidation, an IP may help directors meet legal duties such as calling meetings of shareholders and seeking a decision from creditors.

If a business is solvent, it may be wound-up in a members’ voluntary liquidation (MVL).  For this to happen it must be possible to pay all creditors in full, with statutory interest, if applicable.  An IP must still be appointed liquidator who will then help take the director through the process of an MVL.

Useful links
The difference between Liquidation and Insolvency
Take the Insolvency Test
Winding up Petitions and how they work

On this Armistice Day or Remembrance Day as it is also called, that marks the day World War One ended, we remember those who lost their lives at war.
 
Today we have sponsored Ian Parker from Henchards to do a Firewalk to raise funds for the Woking and Sam Beare Hospice.

Partner Andrew Bailey has sponsored Ian £25 to complete the treacherous walk across 15ft of burning hot coals!

We wish everyone participating in the event good luck