In June 2019, INSOL International released its ‘Ethical Principles for Insolvency Professionals’. Ethics is about the values that should be lived and worked by and respected by all insolvency professionals while interacting with creditors, judges, consumers of the debtor, its board or shareholders. Ethics is nothing scary, a threatening term for being wary for all types of misconduct and liabilities. No, ethics is the result of the view that the rightness of certain actions should be based on rules of behavior. These rules flow from norms with regard to professional conduct. Working according to clear, consistent ethical principles is an important component for delivering quality work, for the benefit of those whose interests are to be served as well as the community at large.
In the INSOL Ethical Principles six principles have been put forward, involving
(ii) objectivity, independence and impartiality,
(iii) professional/technical competence,
(iv) professional behaviour,
(v) remuneration and
(vi) practice management (involving six specified policies).
Each Principle is accompanied by a commentary, explaining its intention and providing certain examples of the Principles, as well as the meaning of several terms used, for which a Glossary is added. The commentary and glossary are helpful sources putting more flesh on the bones of the Principles. My Leiden colleague Gert-Jan Boon and I will be discussing these Principle in more detail in one of the coming issues of Global Restructuring Review, under the title ‘The Ethical IP‘.
With the INSOL Ethical Principles INSOL International – we believe for the first time – touches on the core of the profession, which is a laudable initiative. Although not mentioned as such, the Principles may assist also national legislators, especially those in Europe, when revising existing or drafting future rules. As my colleague and I discussed earlier (see blog/2019-06-doc1-soft-law-instrumentst-in-insolvency-restructuring-law) the last two decades, professional and ethical principles and recommendations have undergone a great development. They now make an important contribution to the highly desirable professionalization of IPs, judges, regulators and, for that matter, legislators. This was also emphasized in the recently adopted EU Directive on restructuring and insolvency 2019/1023. This new Directive recommends the adoption of codes of conduct by practitioners. Therefore, also the Principles of INSOL may be a relevant source for practice.
In Europe, in a 2017 report to the European Law Institute (ELI) it has been recommended (blog/2017-09-doc3-eli-business-rescue-report-published) that European and national legislators should set professional and ethical standards for insolvency practitioners and ensure that the relevant professional bodies are consulted and involved in the creation of such standards and that they take into account best practices for appropriately regulated professional parties as set out in principles and guidelines on regulation of the restructuring and insolvency profession developed or adopted by European and international non-governmental organisations active in the area of restructuring and insolvency. Such standards should at least contain rules on licensing and registration, supervision and discipline, qualification and training, an appointment system, work standards during administration, legal powers and duties, remuneration, reporting and communication and ethical working standards (including rules on conflict of interests and a complaint procedure). For the full 400-pages report, see papers.ssrn.com
The INSOL Ethical Principles do not cover all these subjects. Guidance will be needed too when dealing with the role of an IP acting on specific legislative duties, e.g. relating to privacy, anti-fraud and anti money laundering, with his role regarding assets of financial transactions based on innovative technologies (crypto- and PSD2-payments) and when looking for an answer for the position of a debtor in possession (DIP), its role in an IP-like function and its rights and duties under national corporate law.
One of the greatest dangers for soft law principles on paper, is that paper is patient, but gets out of date in this fast changing world by the (let’s say:) year. That is an unwelcome receipt for the new guest in the house of soft law, as soft law constantly needs updating and improvement. It also serves as a workable tool demonstrating that the profession can keep up its own pants and takes its professional responsibility seriously and learns from inevitable mistakes. In this way, the INSOL Ethical Principles too can continue to make a dynamic and positive contribution to reflect on the intrinsic values and behaviour of IPs, and contribute to the profession’s confidence and respect, not only of the courts and of the creditors and debtors, but also of the general public.
IPs, positively, know that a companies’ restructuring is a continuous process. The same applies to the profession’s ethics too.