4. Bonding

Bonding

This section contains content published after 1 January 2020. Articles published before this date can be found on the National Archives here

7. Bonding (security) arrangements for Insolvency Practitioners – Consultation proposals

The Government has published a consultation, The Future of Insolvency Regulation – proposals to strengthen the insolvency regulatory framework, (see Dear IP chapter 13 article 113). The consultation includes proposals on amendments to the bonding (security) arrangements for Insolvency Practitioners.

In their responses to a previous call for evidence on bonding, stakeholders told us that the current arrangements are inflexible, prescriptive and fail to protect creditors. We have worked with stakeholders since then and Government is of the view that the current regime requires reform. The monetary limits for security bonds have not been updated since 1986, and the General Penalty Sum (GPS) element of the bond is inadequate. In addition, much of the proceeds of a successful bond claim is eaten up by investigation costs, leaving little return for creditors. Changes to the bonding arrangements are therefore proposed and can be found at Part C of the consultation document.

Summary of proposed changes to the bonding arrangements

  • Changes to monetary limits on bond cover:
    • Increasing the GPS element of the bond from £250,000 to £750,000.
    • Increasing the minimum Specific Penalty Sum (SPS) cover from £5,000 to £20,000.
  • Removal of the requirement for Secretary of State to approve bond wording.
  • A period of run-off cover of at least 2 years so that claims can be made after the term of the bond ends.
  • Maximum indemnity period of at least 6 years from date of appointment with any cases going beyond this subject to a separate agreement between the Insolvency Practitioner and the bond provider.

The consultation is also seeking input from stakeholders on the potential use of the bond to cover investigation costs either by:

  • Amending the purpose of the GPS element of the bond.
  • Requiring the value of per-case SPS bonds to be higher, for example 125% of the value of the assets.

The consultation also asks some broad questions around potential future developments of the bonding regime, should the proposed single Government regulator be introduced.

You can read the consultation proposals in full and find details of how to respond by clicking on the following link: The future of insolvency regulation - GOV.UK (www.gov.uk). The consultation ends on 25 March 2022.

Any enquiries regarding this article should be e-mailed to: IPRegulation.Consultation@insolvency.gov.uk