Putting the Creditors First

It is a classic paradox that the whole insolvency process is underpinned by the interests of creditors. However, the remarkable irony is that creditors although considered the primary stakeholder in the process are all too frequently the biggest losers and simply paid last. The statutory order of payment in insolvency proceedings means that creditors are at the end of the money queue.

Some of the costs, safeguards and expenses of the insolvency process act to reduce the returns to creditors. This is arguably unfortunate and one may wonder if indeed all these safeguards overall do indeed provide creditors satisfactory benefit. Take the costs of the Insolvency Bond for instance. An Insolvency Practitioner (“IP”) has to bond for their own fraud and or dishonesty but will the bad IP have necessarily bonded for the case that he or she misappropriates property from? Probably because the misappropriation may well arise a long time after the bond was taken out but another thought – will the bondholder necessarily have to pay out?

Do the costs of all the regulation and compliance that an IP has to deal with benefit creditors or just eat heavily into their potential returns?

Would it be better instead of lengthy statutory procedures and the voluminous rules for an IP to navigate through, to cut out some of this red tape and simply have an overriding principle of transparency to creditors, letting them determine what information they want instead of someone telling them what they must have?

An IP is a fiduciary, so do the corresponding principles of acting in good faith, transparency and in the interests of creditors need extra safeguards?

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