INSOLVENCY FIRM EMPLOYEES AND THE NEW CODE OF ETHICS
The ICAEW has published the new Code of Ethics for Insolvency Practitioners which will come into effect on 1 May 2020. Much of the changes in the 69 page document are to the presentation rather than the substance. The familiar five Fundamental Principles remain untouched, as do the five main threats.
Where the Code varies in a notable way is at 2390.17 to 2390.20 which is within the Non-Compliance with Laws and Regulations section and deals with the responsibilities of members of the insolvency team. I have set out below a brief summary of the relevant paragraphs and then my thoughts thereon.
The New Code
At R2390.17 (the R prefix means it is a requirement which must be followed) it states in bold:
If, in the course of carrying out professional activities, a member of the insolvency team becomes aware of information concerning non-compliance or suspected non-compliance, the team member shall seek to obtain an understanding of the matter. This understanding shall include the nature of the non-compliance or suspected non-compliance and the circumstances in which it has occurred or might occur.
The term “insolvency team” is underlined in the code because it is a defined term. At the end of the code is the definitions and “Insolvency team” is defined as:
All persons under the control of direction of an insolvency practitioner
Therefore, via R2390.17 it appears that all staff at an insolvency firm are required where they become aware of or suspect any compliance or regulatory failings or breaches to find out more about the potential issue.
Advice is provided at 2390.17 A1 and 2390.17 A2. A1 states that the team member is expected to apply knowledge and expertise appropriate for their role, so a junior administrator is not expected to know the same as a senior manager. A2 notes that the team member might consult with others in the organisation, an authorising body or with legal counsel.
R2390.18 requires the team member to report it to their immediate supervisor unless they are part of the issue in which case they should go up the chain of authority. R2390.19 notes that in exceptional circumstances the team member may determine it is required to disclose directly to an appropriate authority.
The advice at 2390.20 suggests recording details of the matter at hand, the results of discussion, how the supervisors have responded and what courses of action were considered. It concludes by encouraging the team member to consider whether filing the details separately is necessary. It is presumed this means separately from the usual case filing, but this is not explicitly stated.
This is potentially an onerous requirement to place on what could be very junior staff. Beyond simply requiring them to notice possible issues. They are required to carry out their own investigations into the issue before making a decision on what to do. This has the ability to create tension between their duties under the code and their role as an employee of the insolvency firm and the position of the IP as an employer or controlling party of their employer. I know that I would have been wary of such action when I was just starting out on my insolvency career.
This could become more of an issue for employees in situations where the suspicions are well founded. In the work undertaken at Griffins we have come across people who are not the appointed insolvency practitioner on jobs, but who are very much part of misfeasance and frauds committed in relation to insolvency appointments. This has caused us to consider whether such employees might have some level of accessory liability, such as for dishonest assistance. If it can be shown that the employees were under a duty to look out for such matters, investigate them and report them, then it is arguable that breaching that duty by failing to act (and more so with playing a key part in the matter) would assist with bringing a dishonest assistance or similar claim against them. Employees might find themselves walking into personal liability for following the instructions of the IP.
Further, there is a potential HR angle to the new code. Without careful HR policies on how such matters are dealt with, it is possible that an employee would think that they are complying with the code by continuing to raise the issue, without realising the potentially negative effects on their employment.
A possible result of the Code’s implementation will be that training for employees should include details of their personal duties under the ethical code. It would be encouraging if the regulators were to mandate that, similar to AML and anti-bribery training, it was a requirement of the firm to ensure that all employees undergo training and refreshers on their ethical duties. Regardless, there certainly needs to be a concerted effort to ensure all employees are aware of their duties in the new ethical code.
"As published on 4 March 2020 on LinkedIn by Andrew Goodson, Insolvency Practitioner at Griffins https://www.linkedin.com/pulse/insolvency-firm-employees-new-code-ethics-andrew-goodson/?trackingId=C7HO0FzVtlWScn%2F%2FE4g1Gw%3D%3D
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