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Insolvency Service redundancies will have damaging effect

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With the announcement of mass job cuts in the corporate division of The Insolvency Service, Leeds and every other regional office across the country is likely to lose around three front-line insolvency investigators.

With the announcement of mass job cuts in the corporate division of The Insolvency Service, Leeds and every other regional office across the country is likely to lose around three front-line insolvency investigators.

This could lead to more unfit conduct by directors going undetected.

There's a general feeling that The Insolvency Service has already been struggling to fulfil its duty to protect the public by investigating and where appropriate disqualifying directors who are guilty of misconduct. And these redundancies will make the situation even worse.

Many directors will allow their companies to go into liquidation ensuring they have no assets and it is now less likely their activities will be investigated properly, which will have a knock-on effect for their suppliers and the people to whom they owe money.

It is purely a cost-cutting move and one which is easy for the government to make as The Insolvency Service is not very popular in terms of perception.

With Official Receivers typically investigating an average of 30 to 40 cases at any one time, there is a significant question mark over how ongoing cases will be progressed in the short term and an even more crucial issue is the effect the cuts will have on the regulation of directors going forward.

However, creditors should not forget that in many cases a highly qualified Licensed Insolvency Practitioner will be appointed.

The Liquidator has extensive powers under the insolvency Act 1986 to investigate and pursue directors who maybe guilty of misfeasance.

We believe that although the level of corporate insolvencies appears to have peaked in recent months, this may well simply be the calm before the storm.

If 2011 sees the increase we expect due to a hardening of attitudes by HMRC and the banks, the number of company failures may again rise dramatically.

It is crucial that the current insolvency regime is effectively enforced by The Insolvency Service, Insolvency Practitioners and insolvency lawyers, to protect creditors and consumers from unfit directors and also to act as a deterrent to others.

Since 1986, more than 9,600 disqualification orders have been made because of unfit conduct in failed insolvent companies, for periods up to the statutory maximum of 15 years.

What is very concerning if you listen to the economists is the significant likelihood of more insolvencies coming.

Making cuts now is not a long-term answer, they should be recruiting. 

This article was featured in The Yorkshire Evening Post - 20 July 2010.