Insolvency practitioners are held as fiduciaries for those they act for. A fiduciary is a person to whom power or property is entrusted for the benefit of another.
What’s a Fiduciary Duty?
Fiduciary duties are imposed by the common law. They put the fiduciary under an obligation to act with the highest standard of care to the person to whom they are providing the services (referred to as the principal or the beneficiary). Fiduciary duties impose obligations for the fiduciary to the beneficiary. For example, there cannot be a conflict of interest between the fiduciary and the beneficiary. Fiduciaries are also under a duty of confidentiality to the beneficiary.
What are the Fiduciary Duties Applied to Insolvency Practitioners?
While the general concept of fiduciaries and fiduciary duties are imposed by common law, insolvency practitioners are subject to a code of ethics that outlines how the fiduciary relationship and fiduciary duties apply to insolvency practitioners.
The code outlining these duties is issued by both the Insolvency Practitioners Association (IPA) and The Institute of Chartered Accountants in England and Wales (ICAEW). Both bodies regulate insolvency practitioners and insolvency practitioners must apply it to all aspects of their insolvency work.
Insolvency practitioners’ fiduciary duties are defined through several fundamental principles. These are as follows:
- Professional competence and due care
- Professional Behaviour
The insolvency practitioner should be straightforward and honest in their professional and business relationships. For example, they will need, to be honest about the relative merits of different courses of action for a particular insolvent company once they have reviewed the relevant facts.
Insolvency practitioners must be objective and shouldn’t allow themselves to be biased or unduly influenced by others in their professional decisions. They must ensure that they do not have conflicts of interest with the beneficiary to ensure such conflicts do not affect their objectivity. There are some situations where insolvency practitioners can act for a beneficiary where there is a conflict of interest but appropriate steps must be taken to ensure the conflict does not affect their objectivity in any way.
Professional competence and due care
The insolvency practitioner must ensure that they have sufficient professional knowledge and skill to deal with the cases that they take on. They are under a duty to provide their clients with a competent professional service.
Additionally, they must ensure that they take due care when providing services to beneficiaries and ensure that they are diligent in their advice and actions in accordance with applicable professional standards.
Insolvency practitioners must ensure that they keep the confidential information of the beneficiary confidential and should not disclose this information to a third party without proper authority from the beneficiary. There are some exceptions to this duty of confidentiality, such as where the insolvency practitioner is legally obliged to disclose the confidential information or where they are under a professional obligation to do so.
The insolvency practitioner must ensure that it does not use any confidential information gained as part of a fiduciary relationship for their own personal benefit or for the benefit of any third party.
Insolvency practitioners must behave professionally: this includes compliance with relevant laws and regulations and avoiding any actions that may be seen to discredit the profession. They must act in a courteous and considerate manner when undertaking their work.
Here at AABRS, we are licensed insolvency practitioners. If you think you might need the help and advice of an insolvency practitioner, we offer a no-obligation initial consultation. Simply call 0208 444 2000 or contact us using the contact form for help.