New Code of Ethics for insolvency practitioners – IP as an employee
By Steven Wood, Practice Support Specialist (Insolvency)
5 May 2020
The new revised and restructured Part 5 of the 2020 ICAS Code of Ethics for Insolvency Practitioners became effective on 1 May 2020. This article will form part of a series looking at specific aspects of Part 5 of the Code.
ICAS adopted a new revised and restructured Code of Ethics (the Code) with effect from 1 January 2020. This replaced the previous version (applicable from 1 November 2017 to 31 December 2019). Part 5 – applicable to Insolvency Practitioners, is effective from 1 May 2020.
The Code has been updated following consultation and the structure is substantively based on the revised and restructured International Ethics Standards Board for Accountants (IESBA) Code of Ethics. IESBA’s intention behind this restructuring of the Code was not to fundamentally change the substance of the Code, but to improve its clarity thereby making it more user-friendly.
A previous article summarises some of the main changes resulting from the implementation of new Part 5 of the Code. This article will focus on the IP as an employee and forms part of a series looking at specific aspects of Part 5 of the Code.
Insolvency Practitioner as an employee
An entirely new section of the Code (section 2380) has been created to reflect environmental changes under which IPs operate. Since the Code was introduced the number of IPs who are employees rather than principals in firms has increased. Such IPs have less influence over the operation and strategy of the firm.
The new section emphasises that an IP is required to comply with the fundamental principles and apply the conceptual framework to identify, evaluate and address threats.
Control and influence
The Code acknowledges that an IP who is an employee might have a reduced ability to control or influence matters within the firm which might affect the actions available as safeguards to address threats to compliance with the fundamental principles.
Examples of facts and circumstances that might create threats for an IP as an employee are provided and include:
- Being eligible for a bonus related to achieving targets or profits.
- Having inadequate resources for the performance of an insolvency appointment.
- A lack of control over processes and internal governance.
- Being threatened with dismissal or demotion over a disagreement about an insolvency appointment.
- An individual attempting to influence the decision-making process of the IP.
The Code goes on to cite actions that individuals might take to address such threats prior to accepting an offer of employment. These include:
- Appropriate contractual arrangements with the employer.
- Implementing policies and procedures to prohibit individuals who are not members of the insolvency team from inappropriately influencing the conduct of an insolvency appointment.
- Publishing policies and procedures to encourage individuals within the firm to communicate to senior levels within the firm any issue relating to compliance with the fundamental principles that concern them.
- Obtaining sufficient information to obtain an understanding of the structure and ownership of the firm.
Ethics-based culture
The more senior the position of the insolvency practitioner, the greater will be the ability and opportunity to access information, and to influence policies, decisions made and actions taken by others involved with the firm.
To the extent they are able, IPs are encouraged to promote an ethics-based culture, with examples of action that might be taken given as the introduction, implementation and oversight of:
- Ethics education and training programs.
- Ethics and whistle-blowing policies.
- Policies and procedures designed to prevent non-compliance with laws and regulations.
Summary
Section 2380 essentially re-emphasises that insolvency appointments are personal to the individual IP. The fundamental principles must be adhered to regardless of the IP’s status within a firm and it is the IP’s own responsibility to ensure that this is the case. A reduced ability to control or influence matters within the firm does not mitigate any failure.
The Code makes clear that if threats to compliance with the fundamental principles cannot be appropriately addressed, it is expected that the IP should consider whether it is appropriate to accept an offer of employment or to resign from their current employment.
Further information
Read more about the 2020 Code of Ethics.