HC Deb 23 October 1996 vol 284 cc112-20

Motion made, and Question proposed, That this House do now adjourn.—[Mrs. Lait.]

10 pm

Mr. Peter Butler (Milton Keynes, North-East)

I am grateful for the opportunity to raise this matter on the Adjournment, although I wish to record immediately my regret that it should be necessary so to do.

The background is straightforward. My constituents, Mr. and Mrs. Preen, set themselves up in business. They built up a reasonably successful business, with a turnover of about £250,000 a year. They were trading from a leasehold property in Milton Keynes. Their landlords refused to comply with the repairing covenants in the lease, and instituted a campaign of intimidation and disruption in an attempt to persuade my constituents to abandon the lease.

The situation deteriorated to the stage when it became necessary to consider court action against the landlord, who was refusing to carry out repairs or to permit the quiet enjoyment of the premises to which the tenants were entitled.

In December 1992, the landlord issued a false invoice—subsequently withdrawn—in the sum of £12,000. On the basis of that invoice, the landlord threatened my constituents with action by the bailiffs. That is the background to the matter.

Mr. and Mrs. Preen were advised that they could either sue the landlord, with all the risks involved in that, or place their business into administration. On 21 December 1992, they contacted a firm of accountants called Fryer and Co., of Luton. A Mr. Aiyer from that firm arrived and accepted instructions from them, reassuring them that he was a chartered accountant, qualified in protecting companies in such situations, and licensed by the Institute of Chartered Accountants in England and Wales as an insolvency practitioner. At this point, the company was solvent, with cash in the bank more than adequate to cover the sum properly due to the landlord. The only other creditors were Mr. and Mrs. Preen, as directors of the company.

Accordingly, on 22 December Mr. Aiyer, a chartered accountant and licensed insolvency practitioner, of 27 Cardiff road, Luton, was appointed as administrator to protect the company. My constituents thought that their problems were now under control. Little did they know that the nightmare was only just beginning. I shall not trouble the House with the details of Mr. Aiyer's conduct over the following months. Suffice it to say that, on the facts that I have, it is clear that, when he was not being negligent or incompetent, he was being deceitful and dishonest.

We have reached the summer of 1993. At this stage, Mr. Aiyer moved in for the kill. He let it be known that he intended to close down the business, having removed the fittings into storage with another company with which he had a business relationship, which company in due course raised inflated invoices for the storage fees. He then intended to secure the transfer of the company in its entirety to yet another company, with which it is believed he had a continuing business relationship. It seems that, at about this time, he also sent to Companies House forms purporting to be the resignations of Mr. and Mrs. Preen as directors of their company.

So my constituents were in the position that their solvent company was being taken from them by a chartered accountant and licensed insolvency practitioner whom they had appointed initially to protect the company. To whom is the layman to turn in circumstances like these, when a professional is, to put it neutrally, failing in his or her duty, or, to put it realistically, being dishonest? The answer, of course, is that he should turn to the recognised professional body. That is the body charged within the profession to self-regulate.

On 13 July 1993, Mr. and Mrs. Preen reported. Mr. Aiyer's conduct to the director of professional conduct at the Institute of Chartered Accountants in England and Wales, which I shall refer to merely as the institute. They expected the professional body to act swiftly to protect members of the public. In this case, it might have been expected to be especially swift, because the disciplinary committee, on 20 October 1992, only two months before he was appointed to Mr. and Mrs. Preen's company, had found Mr. Aiyer guilty of misconduct within the meaning of its byelaws and liable to disciplinary action, in that, between January and June 1991, he had passed clients' moneys through his firm's office account. He had been reprimanded, fined and ordered to pay costs. Despite this knowledge, the institute took no action on the urgent complaint lodged in writing by Mr. and Mrs. Preen.

We now know that the investigation of Mr. Aiyer had been flawed.

It was not noticed that he was at that time not complying with the terms of the licence. We now know that, because on 8 November 1994 he pleaded guilty to having acted illegally as an insolvency practitioner from 1986 to 1993. He entered a plea of guilty to that at Luton magistrates court. Had the institute been diligent and discovered that when it investigated him in 1992—by which time he had already been acting illegally for some six years—none of the following would have happened.

For some time—not days, not weeks, but months—the institute's only response to the complaint was by standard pro forma notices of receipt of communications. My constituents firmly believe that, if the institute had acted professionally and competently when the complaint was lodged, the subsequent conduct of Mr. Aiyer could not have taken place, and they as members of the public would have received the protection from a corrupt accountant to which they were entitled, and which the institute is charged by statute to provide.

In the event, Mr. Aiyer continued with his plans. The assets were completely transferred away from Mr. and Mrs. Preen, who received not even one penny in the pound in respect of the amount standing as owing to them in the accounts of the solvent business at the time when Mr. Aiyer was appointed administrator at the end of 1992.

Mr. and Mrs. Preen became concerned that the institute was not taking any action. In December 1993, they contacted me, as constituency Member of Parliament for their place of residence, although not for their previous place of business.

On 4 January 1994, I commenced a correspondence with Mr. Greenwood, the case officer at the Institute of Chartered Accountants. I sought confirmation that an investigation was under way, and a time scale for that investigation. After a reminder some four weeks later, I received a response from the institute. It stated that the matter might be disposed of at the beginning of March 1994, but that, if a formal complaint to the disciplinary committee were preferred, it would be several months later.

Time passed, with no contact from the institute. I therefore wrote to Mr. Greenwood again on 21 July, putting it to him: Looking at this objectively, as an outsider, it does not look at all satisfactory. Here we have what is a genuine complaint, which may or may not be upheld in due course but which certainly requires investigation. You are the professional body charged with that investigation. It is taking months and you still cannot give any indication of a date when it will be concluded. Are you satisfied with this state of affairs? If so, how do I explain to a constituent that the profession appears to have no interest in coming to a conclusion within a reasonable time scale. If you are not satisfied, would you like to suggest ways in which it could be improved, either by action of your own Institute or by Government intervention? On the assumption that a profession should be unhappy with an unsatisfactory state of affairs, I will look forward to your response. I received a holding reply, and, on 12 August, a fuller reply stating that the matter had "been discussed in March", and that a sub-committee had been set up to examine the papers in detail". On the question of the time scale, Mr. Greenwood stated: this case has taken slightly over a year to reach its present position which is not, in my view, unsatisfactory". I have to say that I do not share the institute's view that one year is a satisfactory length of time for a preliminary investigation of one of its members, particularly one who already had a record of disciplinary proceedings.

Following that, the customary period of silence ensued from the institute until I wrote to it on 15 October 1994 asking whether there had been any progress. Mr. Greenwood replied that there had been progress: the small sub-committee's report had "recently come to hand", and would be considered by the investigations committee on 29 November 1994. He went on to say: I or one of my colleagues will advise Mr. Preen of the outcome as soon as possible thereafter". That was never done.

Mr. Preen contacted me again in February 1995, approaching 19 months after he had lodged the original complaint. It turned out that the matter had been considered in November, and that Mr. Aiyer had been asked to attend a committee on 3 January, subsequently adjourned to 31 January. None of that was communicated either to me or to Mr. and Mrs. Preen, and it might have remained a secret for ever had not Mr. Preen yet again initiated contact with the institute himself.

On 22 February, the institute wrote to Mr. Preen that the hearing on 31 January had been not a disciplinary hearing, but an interview aimed at assessing what might have caused problems in Fryer and Co., and what might best be done about them. A decision had been made not to prefer a formal complaint.

The institute went on to give the astounding news that the insolvency licence had in fact been withdrawn, saying: that was done last autumn, administratively, not by disciplinary action. When challenged, the institute said that it was not its practice to make such a decision public until it took final effect.

When it was asked for an explanation of that, it turned out that, in effect, Mr. Aiyer had been told that he could not take on any more clients, as he had been acting illegally for some years, but that he could continue with the clients he currently had. Presumably so that he could do that without his practice being disrupted, no one would be told that his licence had been revoked until March, some four months later.

I formed the view at this stage, as I think any reasonable man might have done, that the conduct of the institute as regards its investigations and disciplinary procedures was unsatisfactory. I therefore wrote to the president of the institute on 7 March, expressing my concern and saying: it would appear on the face of it that the Institute is not discharging its duties properly". I asked for a meeting to discuss the case.

The president did not reply, but I had a response from the secretary and chief executive by letter of 14 March. In it, the secretary said that he was satisfied that the institute had discharged its duties properly and gave me, for the first time, the news that a prima facie case of misconduct had been found against Mr. Aiyer. He said: the investigation committee was of course aware of the withdrawal of Mr. Aiyer's licence and the impact that would make on his professional life". I think that that phrase may be taken to sum up the view of the institute, which appears to be that its primary—almost sole—objective is to protect its members rather than to afford protection to the public. The secretary and chief executive made no reference to my request for a meeting to discuss the matter.

I was in exactly the same position that my constituents had been in. I was unable to persuade the institute to keep me properly informed, and I was unable to satisfy myself in the slightest that it had acted properly in this matter. It turned out that the administrative withdrawal of his licence referred to by the institute was as a result of the plea of guilty, to which I have already referred, entered by him in Luton magistrates court on 8 November 1994 to a charge that he had acted between 1986 and 1993 as an insolvency practitioner at a time when he was not qualified to do so, an offence contrary to section 389 of the Insolvency Act 1986. Mr. Aiyer was given a conditional discharge for two years and ordered to pay £100 costs. Even that was not a matter that the institute felt it necessary to bring to the attention of Mr. and Mrs. Preen as the complainants, or myself as their Member of Parliament.

That is the whole of this sorry tale. A man who did not comply with the requirements to permit him to practise as an insolvency practitioner none the less did so as a member of the Institute of Chartered Accountants, and under the protection of his membership of that institute, for some seven years. In the course of that time, the institute itself had taken disciplinary action against him on other matters but without noticing his failure to comply.

While he was in the process of what amounted to theft of my constituents' assets and company, the institute did not act with due dispatch and diligence in response to a complaint by members of the public who looked to the institute to regulate its members properly. Had the institute done what we have the right to expect it to have done, much of the damage would not have taken place.

My constituents have no redress against a bankrupt accountant, or against the institute, unless they can show that there was bad faith. What are they then to do except to take it up with their Member of Parliament, and by way of an Adjournment debate? I am led to believe that no sanction can be imposed by the House or the Secretary of State on the institute, other than the ultimate sanction of removing its right to license practitioners.

The whole story is a state of affairs that I no longer find acceptable. I know that meetings have taken place with the Insolvency Service and the institute to try to improve the institute's complaints procedure. Indeed, I believe that the institute has accepted that errors have been made in the past in a number of cases, and has promised to do better for the future. That is reassuring, but it does nothing at all to assist my constituents.

As a postscript to this sad tale of fraud, deception and incompetence, I can tell the House that Mr. Aiyer himself was made bankrupt at Luton county court in July 1996. This bankruptcy was described by the local press as having cost him a once successful business". My constituents, Mr. and Mrs. Preen, know exactly how that feels.

The final irony is that the institute immediately washed its hands of the whole matter, on the basis that, as a bankrupt, he had automatically ceased to be a member.

I hope that the Minister, in replying to this brief debate, can assure the House that the Institute of Chartered Accountants of England and Wales is, in his view, a competent body to carry out its duties and that arrangements are in place to ensure that it will do so in future, because it has singularly failed to do so in the past. If the Minister is unable to give that assurance, which I would of course accept from him, self-regulation will clearly have failed, in this part at least of the accountancy profession, and the Government must then be driven to consider something along the lines of the complaints tribunal or ombudsman which are applicable in other professions.

The director of the complaints section of the institute has said that he hopes it will be some consolation to Mr. and Mrs. Preen to know that shortcomings to which you drew attention have been addressed. It is not the slightest consolation to a couple who placed their faith in a member of the institute and who have been defrauded of everything.

The issue that I have raised in the debate affects everybody who instructs and trusts any member of the Institute of Chartered Accountants of England and Wales. The dilatory correspondence, the failure to keep my constituents or me informed as promised, the undue delay and the lack of disciplinary penalty—all conducted behind a wall of secrecy and the grudging release of information only when pressed—lead me to believe that the institute is falling down on its statutory obligations. On behalf of Mr. and Mrs. Preen and the public generally, I look to the Minister for assurance that the institute will not be allowed to conduct itself in this way any longer.

10.14 pm
The Minister for Competition and Consumer Affairs (Mr. John M. Taylor)

I congratulate my hon. Friend the Member for Milton Keynes, North-East (Mr. Butler) on securing a debate on this matter. I listened to his speech with interest. The important sentiment that seizes me is that I greatly sympathise with his constituents, Mr. and Mrs. Preen. They are clearly dissatisfied with the way in which matters proceeded following Mr. Aiyer's appointment as administrator of their company. Furthermore, they are most unhappy with the way in which the Institute of Chartered Accountants subsequently handled their complaint about Mr. Aiyer I shall return to their case, but I should like first to make some general points about the regulation of the insolvency profession.

One of the major recommendations of the review committee on insolvency law and practice, which was chaired by the late Sir Kenneth Cork, was that insolvency practitioners should be members of a recognised professional body approved by the Secretary of State. These proposals were accepted by the Government. Seven bodies, including the principal accountancy bodies and the Law Society, both in England and Wales and in Scotland, have been recognised to authorise insolvency practitioners. The Secretary of State also has a licensing function and currently authorises some 150 practitioners.

In 1992, my Department's insolvency service commenced a programme of routine monitoring visits to practitioners to test compliance with the legislation. Visits were undertaken both to practitioners authorised by the Secretary of State and to those authorised by the recognised bodies. The visits identified a number of practitioners with compliance problems.

Since 1994, the bodies have had in place a formal programme of monitoring visits to practitioners. The purpose of the visits is to assist in determining whether a practitioner is and continues to be fit and proper. and to promote compliance not only with statutory obligations but with best practice. It is clear from the monitoring process that the majority of practitioners are continuing to make improvements, and are now regarded as having acceptable procedures. When failures in compliance are identified, undertakings are sought where appropriate. In more serious cases, the authorising body will consider whether further action is necessary.

My officials in the Insolvency Service are and will continue to be in close contact with the bodies as part of the continuing development of the regulatory process. In particular, there is in place a programme whereby officials visit the bodies to examine their procedures in relation to authorisations and the monitoring and handling of complaints. Appropriate recommendations are made to the body concerned where there appears to be scope for improvement.

Following discussions between my officials, the professional bodies and the Society of Practitioners of Insolvency, agreement was reached earlier this year on the development of best practice guidance for practitioners. This followed concerns which had been raised, particularly in relation to the disclosure of remuneration and appointment procedures. The Society of Practitioners of Insolvency agreed to take the lead in the preparation of this guidance material, which is then issued by each of the bodies to its own practitioners. That is directed to ensuring that the highest standards are pursued, and that a consistent approach is adopted by all practitioners.

There has therefore been considerable progress in the development of the regulatory process since its introduction by the Insolvency Act 1986. The professional bodies are well aware that the regulation of the insolvency profession is the subject of continued scrutiny. This very morning, my officials met the professional bodies, who agreed in principle to set up a working party to review their experience of professional regulation in the 10 years since its introduction. The details of that review will be announced shortly, but clearly, everyone concerned in and with insolvency will welcome that development. I promise that my Department will play a full role in helping to take those discussions forward.

I refer to the particular case that concerns my hon. Friend and his constituents, Mr. and Mrs. Preen. My hon. Friend will recall meeting my officials earlier in the year to discuss his concerns. It is clear that the manner in which his constituents' complaints were dealt with by the Institute of Chartered Accountants was not all that it should have been. There were delays in the investigation into the complaint, and delays in communicating its progress and its outcome to Mr. and Mrs. Preen.

Mr. and Mrs. Preen were not the only people to complain about Mr. Aiyer. By the time the investigation into their complaint had been completed, the institute had already decided to withdraw his insolvency licence. Mr. Aiyer is no longer an authorised insolvency practitioner or an institute member.

I referred earlier to the monitoring visits that my officials make to the recognised professional bodies. Such a visit was made to the institute in 1995, as a result of which recommendations were made in relation to their procedures and practices. Because there were clearly concerns about the handling of Mr. and Mrs. Preen's complaint, my officials arranged to meet the director of the institute's department of professional conduct, Mr. Matthew Ives, and two of his senior colleagues. The meeting focused on not only Mr. and Mrs. Preen's concerns, but more general concerns over the way in which complaints made to the institute were dealt with, and the institute's response to the recommendations arising out of the monitoring visit.

The institute recognised that Mr. and Mrs. Preen remained dissatisfied with the way in which their complaint was handled, and acknowledges that matters were not dealt with as they might have been. There have, however, been material changes to the institute's procedures for handling complaints since Mr. and Mrs. Preen raised their concerns about Mr. Aiyer.

The director of professional conduct was able to point to the introduction of controls to ensure that the issues raised by the complainant are properly identified in every case at an early stage. Further controls ensure that the progress of the investigation into the complaint is closely monitored and managed. Additional resources have been allocated specifically to deal with insolvency-related complaints.

The institute recognises that those improvements come too late for Mr. and Mrs. Preen. The director of professional conduct has written to them to express his regret at their dissatisfaction, and his recognition that there were deficiencies in the handling of their case, for which he has apologised.

My hon. Friend asked me whether some sanction is available to my Department, short of withdrawing the recognition of a professional body, where it had proved itself to be incompetent in the regulation of its insolvency practitioner members. He will be aware that, under the legislation, my Department has no such sanction. Either a professional body is recognised or it is not. I hope that he will accept that most insolvency practitioners operate to a good and ethical standard most of the time and, in so doing, are effectively regulated by the recognised professional bodies. There are always exceptions to that rule, and clearly we are dealing with one such exception tonight.

As I have said before, and it merits saying again, the onus is on the profession and the recognised professional bodies to ensure that exceptional cases are reduced to the absolute minimum, if not eliminated entirely. My officials will be keeping a close watch on the institute's new procedures for handling complaints. It is important—the institute recognises this—that there is no repetition of such cases.

This has been a sorry tale, but I recognise that insolvency, whether it affects individuals or companies, will rarely bring much comfort, if any, to those involved. In such circumstances, insolvency practitioners have an obligation not only to apply their professional expertise but to ensure that the public interest is fully served, by acting in ways that are transparent and fair. Public confidence in the regulation system can only be maintained if the recognised professional bodies ensure that their approach to regulating their members is dedicated to the achievement of those objectives of transparency and fairness.

My Department will continue to press for improved standards within the professional bodies and among the practitioners that they regulate. I assure my hon. Friend that our aim remains a high standard of regulation in the insolvency profession. I thank him for bringing these matters to the Floor of the House.

Question put and agreed to.

Adjourned accordingly at twenty-five minutes past Ten o'clock.