In the intricate world of insolvency, where financial distress meets professional responsibility, the ethical compass guiding Insolvency Practitioners (IPs) and accountants is paramount. The payment and receipt of commissions, particularly introductory fees, have long been contentious, raising questions about conflicts of interest, transparency, and the very integrity of the profession.
The Ethical Framework: ICAEW’s Code of Ethics
The Institute of Chartered Accountants in England and Wales (ICAEW) provides a comprehensive Code of Ethics that serves as a beacon for professionals navigating complex scenarios. This Code emphasises five fundamental principles: integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour.
Specifically, regarding commissions and referral fees, the best place for understanding the situation in short time is the ICAEW’s explanatory note:
“The payment or offer of any commission for or the furnishing of any valuable consideration towards the introduction of insolvency appointments is inappropriate.”
(See the ICAEW’s explanatory note on the Insolvency Code of Ethics or if you want to read longer, more detailed explanations and rules, for IPs click here )
These provisions aim to safeguard the profession’s integrity, ensuring that decisions are made in the best interest of stakeholders, free from undue influence.
The Reality: A Hammer for Every Nail?
Despite the clear ethical guidelines, a concerning trend has emerged where some IPs – particularly those offering only one solution – default to recommending Creditors’ Voluntary Liquidations (CVLs) regardless of the client’s circumstances.
This practice is made even more troubling by the payment of introductory fees to accountants for the referral. The ICAEW Code of Ethics is unambiguous: the payment or offer of any commission for or the furnishing of any valuable consideration towards the introduction of insolvency appointments is inappropriate.
Yet in some quarters, this continues.
This raises serious ethical questions. These IPs are:
- Paying accountants a fee for the introduction, in breach of their regulatory code.
- Earning significant fees from appointments that may not represent the most suitable route for the client.
- Acting with a clear conflict of interest, as their commercial relationship with the referrer may influence the advice they give.
It is not that the IP is earning fees because they paid a commission. Rather, the concern is deeper: they are paying a fee to secure work, and then delivering a service from which they profit – despite it not necessarily being the right option for the client.
This practice undermines trust in the profession and contradicts the very principles IPs are meant to uphold: objectivity, integrity, and acting in the best interests of creditors and stakeholders.
Accountants: Gatekeepers or Gatecrashers?
Accountants, often the first point of contact for distressed businesses, play a pivotal role in guiding clients through financial turmoil. When they accept introductory fees from IPs, especially those with limited service offerings, they risk compromising their objectivity. This not only jeopardises the client’s best interest but also tarnishes the accountant’s professional integrity.
Accountants must ask themselves: is this referral genuinely in the client’s best interest, or is it influenced by the promise of a commission?
How comfortable would any accountant feel in recommending a client to an IP who has only one tool in their toolbox, while receiving an introductory fee that is not disclosed to the client? If the client knew about the payment, would they still trust the recommendation?
The lack of disclosure, combined with a limited service offering, creates a perfect storm where objectivity is sacrificed for commercial gain. So, you’ve introduced a client to an IP, not educated your client on the world of insolvency beforehand (using my bot VAi or otherwise), not accompanied them to the face to face meeting, not sense-checked the advice they’ve been given (using my bot VAi or otherwise), and you’ve accepted an introduction fee despite your client being send down the wrong route with no hope of that being turned around? How professional is that? This undermines the accountant’s role as a trusted adviser and raises serious questions about professional ethics and duty of care.
Accountants must ask themselves: is this referral genuinely in the client’s best interest, or is it influenced by the promise of a commission?
Drawing Parallels: The Close Brothers Case
The ongoing Close Brothers case, involving hidden commissions, underscores the broader implications of undisclosed financial incentives. While distinct in context, the underlying principle remains consistent: transparency is non-negotiable.
Just as hidden commissions in financial services erode consumer trust, undisclosed introductory fees in insolvency compromise the profession’s integrity. Both scenarios highlight the detrimental impact of prioritising personal gain over client welfare.
A Call to Action
The path forward necessitates collective responsibility:
- Insolvency Practitioners: Diversify service offerings to provide tailored solutions. Never, ever, pay for introductions – it compromises your independence and risks breaching your professional code.
- Accountants: Uphold objectivity and act in your client’s best interest. Accepting fees for referrals – particularly where the IP has only one tool in the toolbox – risks steering your client down the wrong path.
Insolvency is a challenging journey for businesses. Professionals entrusted with guiding them must do so with unwavering integrity, ensuring that financial distress isn’t compounded by compromised advice.
The profession stands at a crossroads. By reaffirming our commitment to ethical principles and robust oversight, we can restore trust and uphold the standards that define us.
Note: This article is based on the ICAEW’s Code of Ethics and aims to provoke thought and discussion among professionals. For specific guidance, always refer to the latest official publications and consult with regulatory bodies.
Footnote: I never have never, nor ever, will pay introductory commission to anyone who brings potential work to me. So accountants, please don’t ask — doing so will avoid an embarrassing conversation.