Insolvent firms face crackdown in government shakeup

Insolvency firms face being formally regulated for the first time under reforms to be announced next week, which will nevertheless fall short of a promise to establish a new watchdog.

Sky News has learned that the Insolvency Service, which is part of the Department for Business and Trade, will unveil plans that will mean businesses as well as individuals could face penalties for abuse.

Sources said over the weekend that a statement could come as early as Monday.

The announcement from Whitehall comes almost two years after a consultation was launched to pave the way for the creation of a new independent regulator to sit in the insolvency service.

It came in the wake of high-profile corporate collapses such as those at Bhs and Carillion, which drew attention to the behavior of company directors and auditors.

The aim of the reforms is to close a regulatory loophole and bring insolvency firms into line with rules for audit and legal services providers, said an industry executive briefed on the proposals.

Insolvency service providers have for decades been overseen by a quartet of recognized professional bodies, which include the Insolvency Practitioners Association and the Institute of Chartered Accountants in England and Wales (ICAEW).

In June, the ICAEW was formally reprimanded for the first time by the Insolvency Service after it failed to monitor a person who had been subject to professional restrictions.

A GP said they were surprised ministers had decided not to go ahead with a new regulator.

One source said that could still be a longer-term option, but it would require legislative time.

The scope of the new rules for companies was unclear on Saturday, but the source added that the current quartet of RPBs would be responsible for implementing them.

Among the government’s other promises in 2021 were to create a public register of all individuals and firms offering insolvency services and establish “a system of compensation and compensation

changes to the current arrangements for insolvency practitioners to hold security (bonding) to cover losses in the event of fraud or dishonesty”.

It was unclear whether those reforms would be included in the package announced next week.

The Ministry of Business and Trade declined to comment.

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