Introduction
Over my 40 years as a licensed insolvency practitioner, I’ve witnessed a persistent opacity around funders’ insolvency panels – lists of trusted IPs used exclusively by lenders. These arrangements often empower funders and large insolvency firms at the expense of fairness, objectivity, and transparency. This post explores why that matters, the ethical failures it enables, how legal reforms have tried (but failed) to rebalance power, and why the system still fails to inspire confidence.
1. What Are Insolvency Panels?
Funders (usually banks or asset-based lenders) maintain approved lists of large-firm IPs to step in whenever a borrower defaults. The appeal to a funder is speed, familiarity, and control – but this arrangement often sidelines directors, dismisses unsecured creditors, and limits front-line scrutiny.
2. Claimed Benefits vs Reality
What funders say:
Speed & consistency – known IPs, understood procedures
Efficiency & risk management – streamlined communication
Credibility – vetted practitioners perceived as safe choices
But the reality?
These claims don’t account for the actual risks: sidelined stakeholders, unchecked fees, and potential conflicts of interest.
3. Hidden Costs and Risks
a) Compromised Objectivity
When IPs depend on funders for repeat work, true independence erodes. Key questions emerge:
Will IPs challenge excessive bank charges or questionable security?
Can they stand up for unsecured creditors or directors?
Who exactly are they serving?
One particularly troubling example concerns a leading UK insolvency firm whose second-largest and long-standing shareholder until recently was a major funder that regularly appoints the firm as administrator. That dual relationship – where a key client is also a significant owner – poses serious ethical concerns. How is such a relationship managed and disclosed? As a third party looking in, it’s difficult to understand how this aligns with the ICAEW Code’s requirements on objectivity and the perception of independence.
b) Regulatory Blind Spots
Panel appointments are private and unregulated. There’s no audit trail, no performance review, and no requirement to rotate offices. This allows a closed-shop culture to flourish.
c) Fee Approvals and High Charge-Out Rates
Funders sometimes pre-agree IP fees before appointment, setting the tone for the entire case. Unsecured creditors and directors:
Have no say in that process
Can’t easily challenge fee levels
Have no access to benchmarks or standards
There are no standard or suggested charge-out rates for IPs or their staff in the UK, nor defined criteria for staff grading. Two firms may adopt completely different seniorities for the same level of staff, and use very different hourly rates for each – and nobody would know. And the regulators simply say it’s not their job to scrutinise firm’s charge out rates.
d) Unreasonable Termination Charges and Security Failings
Some funders impose termination charges upon default. These break fees are rarely scrutinised or challenged. And as far as I’m aware, no UK IP has ever taken such a charge to court. The lack of challenge speaks volumes.
4. Ethics in Insolvency : What the ICAEW Code Demands
The ICAEW Insolvency Code of Ethics places clear duties on insolvency practitioners to uphold objectivity and avoid conflicts of interest. It states:
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.”R2210.3:
“Before agreeing to accept any insolvency appointment, including by way of a nomination or as a result of an approach by a creditor or member, an insolvency practitioner shall determine whether acceptance would create any threats to compliance with the fundamental principles.”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.”R2312.8 (reasonable third-party test):
“An insolvency practitioner shall always consider the perception of others when deciding whether to accept an insolvency appointment.”These provisions are not merely aspirational, they are binding requirements. Yet in practice, especially within closed panel systems, one has to ask: how rigorously are they being applied?
IPs must apply the reasonable third-party test: would an informed observer perceive a loss of independence? How often do IPs really look at their position from that of a reasonable third party’s viewpoint?
5. Disciplinary Examples: The Code Can Bite
There have been some major sanctions:
Comet (Deloitte): £925k fine for failed independence
Silentnight (KPMG): £13m fine + 13-year professional ban
And in 2023-24, the ICAEW issued several reprimands for weak ethical safeguards. Yet none appear to address panel appointment practices directly — I believe that this is a glaring omission.
6. Legal Reform: Ending Administrative Receiverships
The Shift
The Enterprise Act 2002 abolished administrative receivership. Funders could no longer unilaterally appoint a receiver.
Why the Change?
The old system gave too much control to secured creditors. The law intended to promote company rescue and better outcomes for all creditors.
Has It Worked?
In my view, no. Secured creditors still pull the strings:
They still choose the IP
They still effectively approve strategy and fees
They just do it under the different legal banner of administration
We’ve swapped formal control for informal control – and the imbalance continues.
7. HBOS Reading Scandal – A Lesson in Funder-Adviser Collusion
In 2017, several individuals connected to the HBOS Reading office were jailed for almost 50 years for their roles in a wide-ranging fraud. This included senior bank managers and external consultants who were found guilty of abusing their positions to enrich themselves at the expense of distressed business owners. They funnelled clients toward favoured consultants, extracted bribes, and inflicted enormous personal and financial damage, people lost their businesses and homes. Some insolvency professionals were implicated in the wider scandal.
“You sold your soul, for sex, for luxury trips… for bling and swag.”
— The Guardian, 2 Feb 2017
The Dobbs Review
Appointed in 2017 to investigate Lloyds’ handling of this scandal. As of June 2025 – still unpublished.
Victims say the delay “obscures the truth.”
As with the Post Office scandal – on which we can probably all agree – delayed justice is no justice.
8. When Panels Appoint from Afar: The Cost of Distance
In 2024, a Black Country factory lost £1 million in assets during administration. The IP and agents were based in the South and didn’t attend the site for two weeks. The factory was stripped.
“The site had been left unsecured… by the time they attended, thieves had stripped the factory of plant and equipment.”
– BBC News, 5 March 2024
This one stuck in my mind because I live less than half a mile, my offices are less than 2 miles, from that factory. (Clearly I wasn’t and am not on the panel.)
9. A Familiar Problem: Audit Independence and Panel Parallels
Audit firms have been criticised for staying too long, getting too close, and failing to challenge. That’s why we have audit firm rotation rules for bigger entities.
So why don’t we question long-term panel IP relationships, where the funder is both the referrer and fee approver?
10. What Other Professions Can Teach Us
A. Financial Advisers, Surveyors, etc.
Required to declare conflicts. IPs? Rarely do.
B. Public Procurement
Must be transparent and competitive. IP appointments? Mostly private and unreviewable.
C. The Judiciary
Must recuse themselves when bias may be perceived. IPs should do the same – but don’t.
D. Audit Oversight
The FRC enforces rotation and review. Funders face no such duty when choosing IPs.
11. Additional Structural Problems
A. Are Lenders Serving Themselves?
Often yes. Funders can repurchase assets through linked parties – while also approving the IP’s fees. I was at the NACFB show last week, a broker spoke to me about this exact situation. It happens.
B. Skewed Market for Appointments
Small firms rarely get a look in. It stifles diversity and responsiveness. With small firms often having access to systems that medium / big firms don’t, no longer should size be a limiting factor.
C. No Performance Data
If panel IPs are better, where’s the evidence? No outcomes are published.
D. No Creditor Challenge Mechanism
In practice, creditors can’t stop funder appointments – even if they suspect bias or overcharging.
12. Can We Trust Banks to Provide Reliable Figures?
Calls for data transparency in insolvency often start with the idea that funders should publish outcome metrics: how often they appoint IPs, what returns are achieved, what fees are paid. But this assumes that funders are willing and able to provide honest, meaningful data.
Given recent history, that’s a dangerous assumption.
The LIBOR Scandal
Major global banks – including Barclays, UBS, and RBS – were found to have manipulated the LIBOR benchmark interest rate for years. This wasn’t a one-off lapse. It was a coordinated effort to distort a fundamental measure of the financial system for profit. Banks paid billions in fines, and several traders were jailed.
Undisclosed Commission Scandals: Close Brothers & MotoNovo
In 2024- 25, Close Brothers set aside £165 million for redress following revelations it had paid undisclosed commissions to motor dealers – a practice also used by MotoNovo. This meant consumers were unknowingly charged higher interest rates so brokers could earn more. The Court of Appeal later confirmed these secret commissions breached the banks’ duty of care. The Financial Conduct Authority has since opened a formal review into the scale of harm caused, which could rival PPI in cost across the system.
So Can We Rely on Funder-Provided Insolvency Data?
If major banks distort pricing in core financial markets and hide commissions in consumer lending, why would we trust them to report accurate, comparable insolvency performance data?
They choose the IPs
They approve the fees
They control the marketing of assets
And they are under no duty to publish any of this
Until insolvency regulation introduces independent data collection, mandatory fee benchmarking, and third-party reviews, funders’ internal figures cannot be relied on to assess outcomes – however polished they appear.
Conclusion: More Is Needed. And Urgently
Funders’ panels may offer speed and consistency, but at what cost?
Objectivity is compromised
Fee scrutiny is non-existent
Local knowledge is ignored
Regulatory oversight is missing
Professional diversity is blocked
Legal reform tried to fix this. It hasn’t worked. If no one outside the funder–IP relationship understands what’s happening — or can challenge it — how can anyone have confidence in the process?
What Needs to Change
Panel criteria should be transparent
Directors should have more input
Fee benchmarking should be public
Local responsiveness should be mandatory
Regulators must enforce the Code consistently
Rotation and review of panel members should be introduced
Stakeholder rights to object should be simplified and protected
Until these things happen, insolvency will remain a closed world – where insiders benefit and outsiders bear the cost.
A final thought…
Why Not Make Ethics Reporting Routine?
Insolvency practitioners are already required to submit a monthly return to their regulator confirming the bonds taken out for each new appointment – a simple but essential safeguard to protect estate funds.
So why not extend this to include ethics?
A short monthly submission could ask IPs to confirm whether, for each new case:
Any referring party (e.g. funder, solicitor, accountant) has a commercial, ownership or panel relationship with the IP or their firm;
Any potential conflicts of interest were identified and addressed;
The reasonable third-party test under the ICAEW Code of Ethics has been consciously applied;
Any exceptions or concerns were raised internally or with the regulator.
This wouldn’t be overly burdensome. It would:
Encourage active reflection on objectivity;
Provide early flags to regulators;
Enable the regulators to pick up on patterns of conduct;
Deter inappropriate appointments;
Reassure directors, creditors and the public.
If we already report bonds to protect money, why don’t we report on ethics to protect trust?
About the Author:
Paul Brindley FCA is a licensed insolvency practitioner and founder of Midlands Business Recovery. With 40 years in the profession, he champions ethical, transparent outcomes for struggling businesses and their creditors.