Insolvency Service Annual Report and Accounts: 2010-2011 - huge write off of IS assets
The Insolvency Service (IS) have published their annual report and accounts for 2010/2011. As noted earlier on this blog in relation to the last edition of Private Eye, the IS have been forced to write off a staggering £81 million. Mr Stephen Speed, the Agency Chief Executive and Inspector General, provides a summary of the previous year in his introduction. Of particular note is his explanation for the write down:
"Welcome to The Insolvency Service’s Annual Report and Accounts for 2010-11. The 12 months covered by this report were perhaps the most challenging in The Service’s 21-year history as an agency and it is therefore with operational matters that I start this year’s foreword. After a prolonged period of growth in bankruptcy numbers, we entered 2010-11 with bankruptcy numbers starting to fall. In 2010-11, that trend continued and indeed accelerated such that, overall, cases in the year were down a quarter on the year earlier. This fall represented a significant challenge for The Service coming much sooner after the end of the recession than many commentators expected. In anticipation of the loss of income associated with this, The Service had taken a number of cost-cutting steps towards the end of the previous financial year, including starting to reduce numbers of non-permanent workers. At the height of the recession, more than one in five of our workforce were temporary workers. In autumn 2010, we took the decision to release the great majority of the remainder and we started to plan an exit scheme for permanent staff – our first ever.
The Service does not have reserves that it is able to use for exit schemes so I am grateful to BIS for agreeing to provide funding for our scheme. The Service ran a voluntary exit scheme from December which resulted in 470 – around 18% – of our permanent staff leaving just after the end of the financial year under the terms of the new Civil Service Compensation Scheme. There were other cost pressures too. In June 2010, the new coalition Government announced as a part of its deficit reduction programme significant in-year spending cuts as a result of which The Service was asked to find savings of up to 11% in taxpayer-funded activities. I am pleased to say that The Service was able to make a very positive response to this request. Our budgets net of those reductions then formed the baseline for the Spending Review that was announced in October. As a result of these various cost-reduction measures The Service delivered a reduction in its overall spend in 2010-11 of £25 million or 12.3% compared to 2009-10 and, as a result of our voluntary exit scheme, there will be a further £14 million reduction in our paybill this year and further cost reductions of over £3 million. This is, in my view, a significant achievement in such a short space of time.
Since the credit crunch which preceded the recession, the value of assets in insolvent estates – especially property – has fallen or stagnated, lowering the overall value of estates and hence our ability to recover the balance of our case administration fee. In our annual report last year we expressed the view that some of the effect of this could be offset by official receivers claiming compensation for payment protection insurance mis-selling. However, work we have done during the year has shown that the likely level of recoveries from this route is far lower than we had expected. As a result, it has become necessary to write down the value of assets in insolvencies yet to be realised on our balance sheet in our accounts this year.This write-down is a significant one-off adjustment that reflects the cumulative effects of the credit crunch and the recession on our business. This measure, together with the restructuring of our fees last year and again this year and further operational measures to improve asset realisation rates should help to stabilise the position and enable us to work towards starting to reducing our reliance on the Secretary of State fee and reducing headline fees in the medium term, both of which I am very keen for us to do.
The year was not, however completely dominated by operational matters. In July, the Office of Fair Trading published a report on the market for corporate insolvency practitioner services, concluding that there was room for some improvements to strengthen the position of unsecured creditors and that reforms to the regulatory system for insolvency practitioners would also be desirable. The Service has recently consulted on proposals for regulatory reform and will be taking this forward this year with practitioners, their regulators, creditors and other interested parties.
Last summer, the coalition Government announced a review, led by BIS and HM Treasury of consumer credit and debt, including a review of the personal insolvency regime, on which The Service launched a call for evidence during the winter. We have also been active on corporate insolvency policy, consulting on changes to the prepack regime to strengthen the safeguards for unsecured creditors, and on aspects of corporate restructuring.
Our investigation and enforcement work continued apace with an average of six company directors being disqualified every working day, for an average of 6.1 years each and an average of more than three criminal convictions per week being obtained on the basis of initial investigations done by The Service and handed onto criminal prosecutors, with whom we work very closely. We have also invested in getting better publicity for our enforcement work so that company directors, consumers and others are clearer about the potential consequences of misconduct in insolvency or in corporate life. The fall in compulsory insolvencies, generally lower levels of complaints about all forms of corporate misconduct and the operational effects of significant staff reductions means that we expect to see fewer enforcement outputs this year and next. But we remain as committed as ever to protecting consumers and businesses from the actions of the unscrupulous companies, directors and individuals. Redundancy payment claims levels remained high – though not as high as the year before – and I am pleased to say that we were able to make payments on average considerably faster than the targets that Ministers set for us last year.
Indeed, in what was our most challenging year, I am pleased to be able to report that The Service has met all but one of the operational targets set for us last year. For this, I would like to pay tribute once again to our magnificent staff whose professionalism and pride in their work remains as strong as ever."
"This is the ultimate statement of where the law on IVAs is to be found in our great common law...